IVA or Bankruptcy: Everything You Need to Know

Wondering what the difference between going bankrupt and getting an IVA is? This article explains whether you should choose an IVA or bankruptcy.

IVA or bankruptcy, which is better for me?

Just like bankruptcy, an IVA is a form of Insolvency. In the case of an IVA, this means that a proportion of your debts are written off at the end of the IVA.

Distinct from Bankruptcy an IVA offers protection from creditors taking any further enforcement action against you (often in the form of Charging Orders) and it is for this reason that many homeowners prefer IVA’s. Another point that makes an IVA distinct from bankruptcy is that 75% of your creditors (by debt value) need to agree to you entering into one before you can commence.

It is worth noting however that before you consider an IVA you would need to have a disposable income of at least £100/month and debt of at least £12,000 (although these figures could vary depending on which IVA provider you use). You would also be expected to repay at least 15% of your debt over the term of the IVA.

You need to be confident that you could maintain payments into an IVA for at least 5 (potentially 6) years, otherwise, there is potential for the IVA to fail and you being left with bankruptcy as your only other option.

Finally, in the 4th year of an IVA, the Insolvency Practitioner (IP) overseeing your case will ask you whether you can remortgage your property, up to a loan-to-value of 85%. An inability to remortgage may mean that your IVA is extended from the normal term of 5 years up to an extended term of 6 years.

For more information, please see our article on IVA restrictions.

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Declaring bankruptcy while going through an IVA

You cannot declare yourself bankrupt if the IVA has not failed. You will have to wait until the IVA has officially failed before you are able to commence with bankruptcy. If you personally decided to go bankrupt following a failed IVA you would be responsible for the costs of bankruptcy. However, a creditor has the right to take you bankrupt if you default on your IVA and as such in this instance they would be liable for the costs of taking you bankrupt.

Please note in certain circumstances you may be able to cancel your bankruptcy.

What happens if I fail an IVA?

If your IVA fails, then the next stage is to declare bankruptcy. For example, you no longer make the agreed monthly payments. Before going bankrupt we suggest you talk to your IP. Ask them to propose a variation in your arrangement and reduce the repayments to a level that you can afford. If they agree, great if not, bankruptcy would be the only way forward. Also, if you can’t afford your IVA repayments and stop paying your IVA payments then bankruptcy proceedings would also be the likely result.

Will an IVA affect my property?

An IVA will not affect you owning a property. You may need to remortgage your property if it goes up in value over the 5 years of your IVA term. This will release a lump sum to pay creditors. For more details on IVA’s, please read our article on getting an IVA.

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Changes in circumstances

If you plan to move abroad you must let your IP aware of your circumstances.  Please read this article on bankruptcy and moving abroad for more information.

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