IVA or Bankruptcy: Which Insolvency Option is Right For You?

Facing debt problems and looking for a solution? When someone is unable to pay debts, they might consider doing a big insolvency solution, like Bankruptcy, or IVA. These formal debt solutions have many commonalities, as well as differences. This means, one method might be more suitable for you than the other. So, you need to research your options and decide which option would be the best.  In this blog, we’ll get you through IVA and Bankruptcy so that you can weigh up your options and make a decision. Let’s get started!

IVA (Individual Voluntary Arrangement)

An IVA is a legal agreement between debtors and creditors to repay the debts within a mutually-agreed time limit. This type of arrangement is set up by an IP, who is an FCA regulated or authorized professional. Under this arrangement, a person agrees an amount of money that he/she can afford to pay towards their unsecured debts. Also, the remaining debt will be written off at the end of the IVA.

Bankruptcy

Bankruptcy, on the other hand, is for those who carry a level of debt they are unable to repay before a specific period of time. This process is completed in a year; however, it can last as long as three years. Going bankrupt means making a financial start from scratch. A bankrupt needs to hand over all their assets, property, or equity. Everything they have goes to the creditors except the living expenses. 

Is it bad to go bankrupt?

One has to declare bankruptcy. This means, going bankrupt is a choice, and there is a stigma attached to it. However, there is nothing ‘bad’ about going bankrupt. In fact, it is a debt solution for some in order to move forward. The process impacts the credit score, though. Moreover, one can’t be a director of a limited company under bankruptcy.

One of the best advantages of IVA is that it avoids the stigma of bankruptcy. At the same time, it allows you to control your assets better. The best thing is, you can continue your job or run an enterprise with an IVA, resulting in better dividends for the creditors. 

Bankruptcy vs IVA For Homeowners

In case of a bankruptcy, the receiver has two years (from the date when bankruptcy was approved) to decide what to do with equity. If a person has a significant equity and decides to go bankrupt, he/she may be forced to sell or leave it. Likewise, one may be forced to sell a vehicle or other high-value assets. 

However, with IVA, there is no risk of losing your home. There are some implications for homeowners, though. You may be asked to mortgage your property again once you are six months out from the agreement timeline. Or, you can choose to pay your creditors for another 12 months. 

Bankruptcy vs IVA For Business Owners

Once you declare bankruptcy, your business will be shut down. You are required to hand over all the business assets to the receiver. However, if you are self-employed or work out of your home office, it may not be a big deal for you. In that case, you may not have any issues starting from scratch.

Unlike bankruptcy, an insolvency practitioner does not have any claim over your assets or business. Consequently, you are able to continue trading. Furthermore, IVA allows company directors to remain in their position. Thus, it is a better solution for business owners.

Still not sure what insolvency process will be right for you? Talk to a debt advisor who can run through all the possible options for you.