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If you are suffering from severe financial difficulties then you may consider either declaring yourself bankrupt or applying for an IVA (Individual Voluntary Arrangement). Both of these debt management solutions can help you sort out your finances once and for all. So, how do you choose between the two?
You can have yourself declared bankrupt or can be forced to take up bankruptcy proceedings by your creditors. This legal process is often used as a last resort in debt management terms. Here, when filing for bankruptcy, your assets are taken from you by an Official Receiver/Insolvency Practitioner and used/sold to cover as much of your debts as possible. Your assets here can include your home, money and certain of your possessions although you can apply to keep certain things. You may also be ordered to make other payments from any income that you have whilst your bankruptcy is in force.
Declaring yourself bankrupt will involve the payment of various related fees. In most cases a bankruptcy will last for around 12 months although it can last for longer. Once you have been 'discharged' then your debts will be written off although, as your credit history will show your bankruptcy for a good few years things won't always be plain sailing thereafter. There are also certain conditions that you will have to adhere to whilst your petition is in force that may affect what you do for a living and what kind of financial products you can apply for.
Like bankruptcy an IVA will see your debts written off although it will last for around five years. Here, you do not necessarily have to use your assets to pay off your debts but use any spare income that you have to make payments every month to your creditors. These payments will be made by the Insolvency Practitioner that you use (i.e. a solicitor or accountant) to set up your IVA. You cannot set this up on your own.
To qualify for an IVA you usually need to owe £15,000 to a number of creditors and you will need some form of regular income from which you make payments. You also need the creditors that hold 75% of your debts to agree to you using an IVA. Like a bankruptcy an IVA is legally binding and your creditors have to stop chasing you for money once it is running unless you default on your obligations. You may also be able to get your creditors to freeze/reduce the interest being charged on your debts.
Both bankruptcy and IVAs look to get you completely debt free by giving you a period to repay what you can before wiping off your debts at the end of the solution. Bankruptcy will mainly use your assets to do this whilst an IVA will use your income instead. They will both appear on your credit history although bankruptcy may show up for longer than an IVA. Going down the bankruptcy route is generally quicker than using an IVA.
Although both routes here are legally binding an IVA can be kept relatively private whilst a bankruptcy is publicly advertised and you will need to tell your bank(s) and perhaps your employer what is happening. You also need to owe a certain amount before you qualify for an IVA and you need creditor agreement which isn't necessarily the case with bankruptcy.
