Sometimes you can lose track of our financial situation, and when you get a clear look at things, you find that the situation is unmanageable. In these instances, you have to take a sober look at things and make decisions that can help us to get you back to financial stability.
For many people in the UK, this means choosing between two options for discharging debts, and Individual Voluntary Agreement (IVA), or bankruptcy. Each is a fair option depending on your specific situation. However, you should also consider other paths before committing to either of these very disrupting scenarios. Before settling on any specific option, you must find a way to manage your debt that is appropriate to your personal circumstances.
Bankruptcy
If you have a serious problem with debt and cannot manage it, bankruptcy is a legal option that might help. It offers many potential advantages to those who cannot pay off their current debts including:
- Creditors will stop harassing you. They cannot take legal action against you.
- You can keep certain items needed for you to continue working and some personal items of value. However, you might have to sell your car.
- You can keep a reasonable amount from your income needed to live.
- Payments into bankruptcy cannot last longer than three years.
- Debts included in bankruptcy do not have to be paid back.
There are, however, many downsides to filing bankruptcy. They include:
- Your credit rating will be affected for six years, and it will be difficult to get new credit during that time.
- Bankruptcies are listed publicly so everyone will know your intimate private financial details.
- Your home might be sold if there is any equity in it. You might also have to sell some of your assets to satisfy creditors.
- You might lose your job, or your business might be shut down and your company assets sold to pay off creditors.
- Your financial affairs could be limited up to 15 years if there is a bankruptcy restriction order filed against you.
- Bankruptcy could affect your immigration status
If you are considering bankruptcy, you should carefully think through the benefits and repercussions with your spouse and a legal advisor.
An Individual Voluntary Agreement (IVA)
IVAs were created as an alternative to filing for bankruptcy. It is for individuals who are in financial distress and seek an orderly way to pay off their debts. The process creates an affordable repayment rate for individuals so they can get out of crippling financial debt.
An individual voluntary agreement (IVA) is an agreement between you and your creditors to help you pay off your debts at an affordable rate and over a period that allows you to continue to generate income and pay your new bills. This option is likely the better option for you than bankruptcy if you:
- Could lose your job if you apply and get bankruptcy protection. Some professions, like police officer and military jobs, do not allow you to file an IVA.
- Have, or are considering applying for a power of attorney on behalf of someone
- Currently, have spare income each month, or you have a lump sum of money that can be used to make repayments to creditors
- Own a business
- Have assets like a home, boat, or other valuables that you want to keep.
An IVA can provide certain advantages over a bankruptcy filing. They include:
- You can continue to use your current bank accounts
- You do not have to notify your bank about an IVA and can continue to use your same bank accounts to make payments.
More flexibility than a bankruptcy
IVAs are designed to work within your current situation. It looks at everything you have and what is possible and then comes up with a workable solution for you with your creditors. There is a focus on having you retail your property and other assets while you pay back what you owe.
You Can Use an IVA to Stop a Bankruptcy
Creditors will often push individuals to go into bankruptcy to get the money owed to them. This can be catastrophic to someone who owes money to them. An IVA can be used to halt bankruptcy proceedings.
IVA Risks
IVAs are designed for individuals whose situations have stabilised. If you are not sure of consistent income or are still spiralling down financially, an insolvency practitioner will step in and end your IVA. At this point, creditors can force you into bankruptcy. Benefits of bankruptcy. You will also likely pay more to creditors in an IVA than you would in a bankruptcy.
Choosing between an IVA and bankruptcy is a complicated decision. Take your time and select the one that best fits your situation and needs.
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