What choice should you make when considering an insolvency solution to clear outstanding and unmanageable debts? Making the right decision is critical. IVA companies will encourage you to take out an IVA as this makes them plenty of money, but beware the implications. Do I Clear Debts with an IVA or Bankruptcy?
IVAs can be an sound choice in some circumstances. If, for example, you wished to continue practicing as a Director or you have significant assets, then of course an IVA is suitable. However, a report released by the Insolvency Service indicated that of all the people who had entered into an IVA, less than 29% were given information about the benefits of bankruptcy and whether it might be a more appropriate solution.
IVA companies have now reduced the amount of debt required to qualify for an IVA from £15,000 to just £7,000 in a bid to attract more clientele. This is ridiculous when considering the long term damage this will have on your credit file. An IVA lasts for a minimum of 5 years. Your income is capped and if you earn any more money you are obliged to pay any surplus income to your creditors. This will leave most people on the breadline for years after they took out the arrangement.
There are always things people can do when looking for help and assistance. It is hard to get these answers when looking for free help and advice, as the reality is that free advice is often the most expensive information you can receive.
Look into the small print of these agreements carefully before you committing. If in doubt get a professional to look at it and have it explained to you.
Bankruptcy UK offers a full bankruptcy administration service and will submit your bankruptcy application online. Court appearances are no longer required for bankruptcy. Call us for bankruptcy help on 01425 600129 or for an informal chat about your circumstances.
I have had two customers go bust owing me thousands of pounds and I have had to lay off my staff and close shop. I am a sole trader so I’m personally liable for my debts and I’m considering an IVA. Has anyone got experience of this or have any advice?
IVAs are specifically designed to protect assets such as properties in positive equity and businesses – particularly limited companies where Directorships are involved – so if you have neither of these an IVA is a wretchedly expensive debt solution. We were not clear about whether you owned a property (with equity) or had any other notable assets, but if you don’t a 12 month bankruptcy is infinitely more desirable than a five year IVA. Call us and we’ll talk you through it.
Bankruptcy UK offers bankruptcy help across the board, including dealing with creditors like HMRC, completing the all-important Income and Expenditure and professional submission of the application online.
Feel free to call us with any other bankruptcy questions or for bankruptcy help on 01425 600129.
I have debts of £23k with a few different creditors which I have been managing to slowly pay off, but I have recently been diagnosed with a condition which has meant I have had to reduce my working hours from full time to part time and now I’m struggling to pay anything. We live at home with my mum so our rent is low. I have a car which is not worth more than £1,500 but is needed due to my condition as I can’t walk far. We would like to buy a house in the distant future. Which do you think would be better: an IVA or Bankruptcy? Which would have more of a negative impact on our future?
Starting from the top, an IVA is specifically designed to protect assets such as properties and businesses, and are wretchedly expensive debt solutions for those in your position i.e. no assets and on low income. Besides, we doubt you would be accepted into an IVA given your earnings. The fact that you have had to reduce your hours will actually help you in bankruptcy, as it is now most unlikely you will be expected to pay anything in an Income Payments Arrangement. As for your car, we feel that in the circumstances you will be allowed to keep it despite it being slightly over the allowed limit. Regarding buying a property in the future, Mortgage Advisers are now able to arrange mortgages for those who have discharged for three years, provided a) there has been no trouble in the interim and b) you have a minimum 25% deposit.
Bankruptcy UK offers bankruptcy help across the board, including dealing with creditors like HMRC, completing the all-important Income and Expenditure and professional submission of the application online. Call us on 01425 600129 or 0800 5977 977 for a chat about your circumstances.
Perhaps the best way to answer this question is to simply state the facts and let you be the judge.
Some interesting points about IVAs:
IVAs are intended to protect assets that might otherwise be lost in bankruptcy e.g. properties, high value vehicles, etc. If you are living in rented and only own everyday items like TVs and fridges, there is no reason to be in an IVA.
You will be tied into the IVA for a minimum of 60 months, but if you are on a ‘low start’ IVA i.e. paying less than you should, you will be tied in for a minimum of six years. For example, if your debts totaled £20k when you entered the IVA you should be paying around £185pm
The set up costs for an IVA can run into thousands of pounds and this is where your monthly payment goes for the first two years of the IVA – to the IVA company to pay the set up costs. Not a penny goes to the creditors.
Thereafter, a trickle of money goes to the debt collectors that bought the debt. It is a myth that you are repaying the banks you borrowed from as it has already been sold on and written off.
IVAs have exactly the same effect on your credit rating as bankruptcy. In the eyes of the High Street, people in IVAs are bankrupt.
Your credit rating is zero for a minimum of 6yrs in an IVA, whereas those discharged from bankruptcy can now get a mortgage after 36 months (credit cards in half that time). Which begs the question: why struggle in an IVA for years on end when you can be in and out of a bankruptcy in just 12 months?
Some interesting points about Bankruptcy:
You no longer have to attend court. Everything is done online and over the phone. You can literally go bankrupt from the comfort of your armchair.
Nobody comes to your house to check what assets you have
Bailiffs, Debt Collectors and harassing phone calls are a thing of the past
You are only bankrupt for a maximum period of 12 months
You can keep cars up to the value of £1000 (but this is often stretched)
You can keep your bank account provided there is no debt or overdraft in place
Mortgaged properties are not lost in bankruptcy if there is no equity
Your name no longer appears in local newspapers
Around 85% of those switching from IVA to Bankruptcy have no monthly payment at all while the remaining 15% have a greatly reduced monthly payment.
Perhaps the most significant point when considering whether to leave an IVA is that your financial circumstances are reassessed. It is often the case that people’s financial positions have worsened since entering the IVA and this is recognised by the court. The end result is that there is often no monthly payment – or a greatly reduced one – following bankruptcy.
If you are considering bankruptcy, we will help you throughout the process and submit your application online. Court appearances for bankruptcy are no longer required. Feel free to call us for a chat or for bankruptcy help on 01425 600129.
The short answer to this is ‘yes’ though it usually only happens if the IVA company specifically requests it. If you are not happy with this state of affairs, you could submit a form 7.1a (or N244) Application Notice to the court in question asking for the IP or Trustee to be changed. This will go before a Judge and provided you have a good reason for your request, it may well be granted.
Feel free to call us on 01425 600129 or 07479 739139 / 07894 481175 with any further bankruptcy questions or for bankruptcy help.
I’ve been in an IVA for 4 years but it’s going to fail … the variation meeting agreed to fail the iva and issue the termination notice but the supervisor has taken no further action… what is the most likely outcome?
When you exit an IVA prematurely, the individual creditors reserve the right to pursue you with a view to setting up separate payment plans. Contrary to popular belief, there has not been a steady flow of money going to the creditors from the outset, as the IVA company would have captured its fees from the first 20 payments. It might therefore be in your best interests to seek the protection of bankruptcy. Call us on 01425 600129 to discuss options.
Bankruptcy UK offers bankruptcy help across the board and will submit your application online. Court appearances for bankruptcy are no longer required. Feel free to call us on 01425 600129 for a chat about your circumstances.
Although 70% of your debt might be written off, a large percentage of this is added back in IVA set up fees.
IVA fees can range from anywhere between £5000 – £13,000 depending on the amount of debt involved.
You may have to pay more to creditors and for much longer than you would do if you became bankrupt.
For example, you may have to volunteer to pay regular contributions from your salary over a period longer than three years in order to make the arrangement attractive to creditors.
Your home and assets may still be at risk. (There is a review conducted in the fourth year of your IVA that can ask for equity to be released from your property).
If the IVA fails, you can still be made bankrupt.
All IVAs are recorded in a public register which may make it difficult for you to apply for credit in the future. You are still classified as bankrupt as you are unable to pay your debts as they fall due.
Failure to re-mortgage your property in the 4th year always results in you having to remain in the IVA for a 7th year
You will probably need to spend more time with an insolvency practitioner working out how to realise your assets than you would spend with a trustee if you became bankrupt. The costs of paying an insolvency practitioner are high.
If you are in certain professions, for example, a solicitor, entering an IVA may mean that you can no longer practise, or may practise only subject to certain conditions.
A creditors’ meeting cannot approve of an IVA which affects the rights of a secured creditor unless that creditor agrees.
IVAs do not end in automatic discharge (unlike most bankruptcies).
Only an approved third party or an intermediary (such as the CAB) can apply online for a debt relief order on your behalf. Debt relief orders are granted by the Insolvency Service and administered by the Official Receiver. The register is open to the public and your name and address will remain on the register for fifteen months. It might be an idea to google ‘Debt Relief Order’ and check the criteria before getting your hopes up, as they are strict.
There is a cost of £90 to apply for a debt relief order. This fee must be paid in cash at a Payzone outlet. You can spread the cost over a six month period but the Official Receiver will not consider your application until the £90 fee has been paid in full.
Once you have paid the fee and sent your application, the Official Receiver can make a debt relief order, providing you meet all the conditions. (It is important to note that it is an offence to give false or misleading information on your application.)
When your debt relief order has been granted, you do not have to pay any of the creditors listed on the order. Your creditors will be informed about the debt relief order and they cannot take any action against you.
Bankruptcy.co.uk is a website providing assistance with most bankruptcy and Insolvency matters. The website provides a gateway to licensed Insolvency practitioners and commercial law practices governed by The Law Society of England & Wales, providing users access to licensed professionals that can help our users to solve their problems. Bankruptcy.co.uk is non advisory and provides information in a way that the user makes their own mind up as to whether they want to use the services of the organisation or not. Any fees charged are fully transparent and there are no hidden charges or costs involved. Our Management believes that people should make their own minds up and understand what it is that they are doing opposed to being lead into making decisions that they did not choose to make.