Bankruptcy vs an Individual Voluntary Arrangement (IVA)

By: Christine Whitfield BA (hons) - Updated: 14 Oct 2012 | *Discuss

 

When people get in to debt they can often find themselves with nowhere to turn to. It can be embarrassing and scary and often can seem like a desperate situation but there are places to turn to. If you are in debt there are several options you can take but how beneficial are they? And what is the best path to choose?

Bankruptcy and Individual Voluntary Arrangements

Two options to be considered when a person is in debt are bankruptcy and Individual Voluntary Arrangements. It must be remembered that these are options are last resorts and should not be entered in to without proper care and consideration and advice from a debt specialist.

Bankruptcy is something that is entered in to when a person cannot pay his or her debts. It means all the debts are written off. Sounds good right? Well it’s not that simple and there are many consequences.Individual Voluntary Arrangements were introduced under the Insolvency Act in 1986. They are considered an alternative form of bankruptcy but the consequences may not be as detrimental. They do, however, come with their own issues.

Consequences of Bankruptcy

One of the biggest consequences of bankruptcy is the loss of control it brings. If you declare yourself bankrupt you will lose control of all of your assets. You will also be unable to get any credit over £250. If you are bankrupt you may not become a company director (and therefore must lose that post if you are already in it). Once the period of bankruptcy is over, i.e. when it has been annulled, you will still face trouble when applying for credit.

Another consequence of bankruptcy is the stigma attached to it. It can be seen as embarrassing (although if it is the only option the person in debt should not let their pride prevent them from seeking help). If you are declared bankrupt this must be made public meaning family and friends will be made aware of your situation.

Consequences of Individual Voluntary Arrangements

Individual Voluntary Arrangements (or IVAs as they are known) are an alternative to bankruptcy. Unlike bankruptcy IVAs are not made public. The agreement is made privately between the person in debt and those that they owe. Also, a person who has entered into an IVA is able to keep their job if they head up a company.However if you do enter into an IVA then you will lose control of your finances in that you must follow a strict budget and you are unable to get credit.

Which Option is Right for Me?

Both bankruptcy and IVAs are serious financial commitments and neither should be entered into lightly. If you are in debt then you should contact a debt counsellor. He or she will be able to tell you whether either an IVA or declaring yourself bankrupt are the right options for you but they should never be seen as the easy way out. However if they are the only options then they can be beneficial so should not be overlooked due to social stigma.

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