For some people, IVAs (Individual Voluntary Arrangements) are a suitable alternative to bankruptcy. They could offer an affordable route out of debt for people who cannot repay their debts in a reasonable period of time. For people who enter an IVA, the debt they cannot afford to repay can actually be written off.
An IVA may be suitable for someone with a total unsecured debt of £15,000 or over, who:
- Wants to avoid the consequences of bankruptcy.
- Cannot afford the monthly repayments of their current agreement – but can afford to make regular monthly payments for the duration of the IVA (normally 5 years).
- Cannot repay their debt in a realistic time.
What’s the difference between an IVA and bankruptcy?
There are many differences between IVAs and bankruptcies, but the ones listed below are often considered the most important ones:
| IVA | Bankruptcy | |
| How long does it last? | An IVA normally lasts 5 years, and stays on your credit report for one year after it comes to a successful conclusion. | Generally 1 year. However:
a) Payments could continue for 3 years. b) In rare cases, a ‘Bankruptcy Restriction Order’ could be arranged, which can last 15 years. |
| What effect could it have on my home? | An IVA may require homeowners to release equity; it is unlikely to force the sale of your home. | Bankruptcy is very likely to force the sale of your home. However, this does depend on factors such as the amount of equity you own, and the circumstances of the inhabitants. |
| What effect could if have on my career? | Certain firms could be reluctant to hire people in an IVA. | If you have been declared bankrupt, you are not allowed to work as, for example, a company director or a local government councillor. |
| Who will find out? | An IVA won’t be advertised, but it will appear in the Individual Insolvency Register (which is publicly available). | Bankruptcy will be published in newspapers. |
What are the similarities between an IVA and bankruptcy?
Although there are others, the similarities listed below are often considered the most important ones.
1. Both IVAs and bankruptcies are forms of insolvency.
2. They both allow people to write off the debt they cannot afford, while paying back what they can afford.
3. Both IVAs and bankruptcies stay on a credit report for 6 years, which could affect the cost and availability of credit during this time.
4. IVAs and bankruptcies both restrict the amount of money that can be borrowed while they are underway.
5. Some debts – secured debts or court fines, for example – cannot be written off by an IVA or a bankruptcy.
