IVA or Bankruptcy

Your options when considering a debt solution. 

Personal debts over £20,000.00

If you are either employed,self employed,retired receiving a pension, and your income matches or is slightly below your reasonable fixed living costs every month.

  1. Do nothing….the negatives….however taking this option will result in continued debt pressure, letters and phone calls from creditors and potential court action that will result in county court judgements and potentially bailiff visits. The Positives.This is a good option if you are expecting monies to arrive in the foreseeable future. It means that you can communicate with your creditors and request that they bare with you, they are quite likely to freeze interest payments and accept a minimum payment of £1.00 a month until your monies arrive and your debts can be discharged. Remember that communication is the key. 
  2. A debt management plan that you arrange yourself to save you costs. This way you can complete your own income and expenditure and you can calculate what is affordable for you each month. You formerly write to all your creditors with a short proposal and set up a payment by standing order every month to your creditors. This way you know what’s going on and you aren’t paying 3rd parties where you aren’t in control and you may not know exactly what has been agreed. This puts you in control. But you will only make this decision if you believe that you are able to change your circumstances that will enable your repayment obligations to be satisfactorily repaid. 
  3. Personal Bankruptcy….if you have no assets and don’t own a property. Or you own a property but you may be in negative equity or your debts still out way any equities that you hold then a personal bankruptcy order will get you “back to Zero” it will eliminate all of your debts with the exception of court fines and maintenance. The period of bankruptcy will last for 12 months providing you cooperate with the insolvency service. You must be available to answer questions that they may have in respect to your creditors, and how you have arrived in the position that you find yourself in. If you are transparent and cooperative and your debts aren’t through recklessness or gambling then you will find bankruptcy a welcome relief. 

If you have debts under £20,000.00 then you may be eligible for a debt relief order. To find out then you should contact your local citizens advice bureau or Step Change. They will be able to confirm if your circumstances qualify for a debt relief order. 

Personal debts over £20,000.00 with assets or sufficient income available after your reasonable living costs are deducted. 

If this is the case then very careful thought needs to be applied if you are considering bankruptcy.

  1. When you enter bankruptcy all assets and liabilities go into the bankruptcy. So if there is equity in a property either solely or jointly owned then you will lose control of it. However if this relates to a jointly owned property and it is just you thats is considering bankruptcy then it is only your share of the beneficial interest that is affected. So your share of the property reverts to The Insolvency Service. At some point your share will be valued and offered to the other shareholder. This person will have a sufficient amount of time to decide if they want to purchase the equity stake now controlled and owned by The Insolvency Service.
  2. If you have no physical assets but there is a residual income after all your fixed living costs are deducted from your income,then you have a choice. You can consider an Individual Voluntary Arrangement. This is an agreement that is proposed, prepared and submitted to your creditors based on income. The objective is to achieve a position whereby 75% of the total amount of debt agree to the proposal that is being made. If this is achieved then the Insolvency practitioners  will submit the arrangement to the insolvency service and the IVA will be listed on the insolvency Register. The IVA usually lasts for 5 years. It will mean that any disposable income you have even if you receive financial bonuses or a windfall from something will be lost for the duration of the IVA. Also be aware that as higher percentage as 80% of all IVA’s fail after the 18 month point. If this is to happen then you will be returned back to the position you were in before you went into the IVA. This can be a very disappointing position for a person to find themselves in because they then have to come up with the funds needed for a personal bankruptcy and have to go through the motions of an additional year of bankruptcy. 
  3. Asset Based IVA this is what we call a one shot IVA. This is an arrangement that is not based on income. It’s an arrangement that is based in the sale of an asset or a 3rd party who is making an offer for you and the monies will be coming from this 3rd party. You will need a good independant Insolvency Practitioner to carry this out and probably not an IVA factory that is providing a one size fits all solution. 
  4. IVA or Individual Voluntary Arrangement for debts under £20k. Be careful of these. Currently there are a considerable amount of companies with an online presence that are acting as paid middle people that are paid commissions starting from £550 just for introducing these IVA’s. You will see companies claiming that if you have debts over £5,000.00 then you can write off debt using government approved schemes. These are IVA’s and the truth is that if you are an able bodied person then this is the last thing you want to do because there are so many alternatives that do not include a bankruptcy or an IVA. A situation like this then you can get the support to communicate effectively with creditors to find a solution that is not going to handicap your finances in the same way that an IVA will. 
  5. IVA’s were originally created in 1986. In 1987 only 11 IVA’s were entered into. They were originally created for businesses as a way of controlling and managing debts and allowing the business to continue trading through difficult times. However in or around the year 2000 they were adapted for the consumer debt market. As the UK had seen a significant influx in credit providers where loans and credit cards started to be introduced to people which heightened people’s unsecured debt levels.  IVA’s are a very effective debt solution if the circumstances are right. High debt levels compared to income or liquid assets. They can be a very effective financial instrument to write off debt for the financially savvy.They should be approached and entered with caution and people should be aware of the consequences when considering a debt solution. 

1 thought on “IVA or Bankruptcy”

  1. An IVA is a binding agreement between you and your creditors to pay all or part of what you owe them. As an alternative to bankruptcy you can enter an IVA before a bankruptcy order is made to avoid bankruptcy, or propose an IVA after a bankruptcy order has been made.

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