Bankruptcy or IVA (individual voluntary arrangement)?

An individual voluntary arrangement (IVA) and bankruptcy are both insolvency solutions that generally involve having a large part of your debt written off.

So if you’re unable to pay back what you owe and you’re considering a debt solution, how do you know which one is right for you?

In this guide, we look at the similarities and differences between an IVA and bankruptcy. We also explain how they’re likely to affect your life.

Both solutions are available in England, Wales and Northern Ireland.

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The difference between an IVA and bankruptcy

Duration

IVA

An IVA usually lasts five or six years.

Bankruptcy

Bankruptcy is a legal status that usually lasts 12 months. After that time, it releases you from most of your debts.

Fees

IVA Fees

There are always fees for an IVA but they can vary quite a bit between companies. If you get an IVA from our sister company, they’ll only charge a fee if your IVA is accepted by your lenders. Those fees are paid out of – not on top of – your regular, affordable IVA payments.

Bankruptcy Fees

The cost of bankruptcy varies slightly depending on where you live in the UK.

England and Wales
• £130 for the application fee
• £550 for the bankruptcy deposit
Northern Ireland
• £151 for the court fee
• £525 for the bankruptcy deposit
• about £7 for the solicitor’s fee
The court fee may be waived in Northern Ireland if you’re on a low income or you get certain benefits.

Lender contact

IVA

Lenders included in your IVA can’t chase you for payment or take legal action.

Bankruptcy

Lenders can’t chase you for payment or take legal action in connection to any debts covered by bankruptcy.

Interest and charges

IVA

Interest and charges on your debts will be frozen.

Bankruptcy

Lenders can only claim for the amount owed on the date the bankruptcy order is made, so technically interest and charges stop. You aren’t officially released from your debts until you’re discharged from bankruptcy (usually after 12 months).

Public Register

IVA

The details of your IVA will be recorded in the public insolvency register.

They usually stay there until three months after your IVA ends.

Bankruptcy

The details of your bankruptcy will be recorded in the public insolvency register. They usually stay there until three months after you’ve been discharged from bankruptcy.

Debt write off

IVA

Once you successfully complete your IVA – usually after five or six years - any outstanding unsecured debt included in your IVA is written off.

Bankruptcy

Your debts will be written off after 12 months.

Home

IVA

Homeowners

You won’t be forced to sell your home. But you may need to remortgage to raise money to go towards your debts. If you’re unable to remortgage, you may need to carry on making your IVA payments for up to an extra 12 months.

Renters

An IVA should have no effect. But some private landlords include a condition in the tenancy agreement that means you could be asked to leave if you take out an IVA.

Bankruptcy

Homeowners

If you’re a homeowner, your property will usually be sold to go towards your debts.

Renters

You will usually be allowed to stay in your home if your rent is up to date. But some private landlords include a condition in the tenancy agreement that means you could be asked to leave if go bankrupt. You could also be asked to leave if you’re behind with your rent.

Car

IVA

You will typically be allowed to keep your car as long as its value isn’t excessive.

Bankruptcy

You’ll only be allowed to keep your car if it’s essential and of low value. It may be considered essential if:

you or someone in your family need it due to a disability
you couldn’t do your job without it
you couldn’t get to work or school without it

Job

IVA

For most people, an IVA won’t affect their job. But it may prove problematic in certain professions.

If you’re a solicitor or an accountant, for example, you might not be able to carry on in your current position with an IVA. Or you may only be allowed to keep your job subject to certain conditions.

Bankruptcy

Many jobs aren’t affected if you go bankrupt. But for some there will be serious consequences e.g. demotion or dismissal. It’s important to check this first.

Credit file

IVA

An IVA will remain on your credit file for six years from the date it’s agreed.

Bankruptcy

Bankruptcy will stay on your credit file for six years from the date it begins. Even after six years, you may be asked to declare if you’ve ever been made bankrupt on things like mortgage applications.

Deciding between bankruptcy and an IVA

When trying to decide between bankruptcy and an IVA, you need to consider how both debt solutions will affect your life.

An IVA might be suitable if you:

can’t afford to pay your debts at the rate you originally agreed to, but you can afford to pay something each month
want to protect assets like your home and car

Bankruptcy might be suitable if:

you can’t pay your debts and the amount you owe is more than the value of your possessions
you can’t see your situation getting any better
it won’t affect future plans e.g. starting a business

Taking out an IVA or applying for bankruptcy are both big steps and there’s a lot to consider. That’s why you should always get impartial debt advice first.

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Can I go bankrupt if I already have an IVA?

If you can’t make your IVA payments and your lenders won’t agree to lower payments or settle your IVA early, your IVA might fail.

If this happens, you’ll be sent a certificate of termination ending your IVA. In this situation, you’ll still have to pay the insolvency practitioner for the work they’ve done so far.

You’ll also still have all your debts and your lenders may take legal action to try and recover the amount you owe.

If the amount still owed under the IVA is high enough, your insolvency practitioner could make you bankrupt. Or your lenders may take action individually to make you bankrupt.

This might be the best option for you. You should get impartial debt advice to help you decide.

If you want to avoid bankruptcy, you should get in touch with your lenders to try and agree a way forward. You might be able to either:

work out a payment plan
get them to pause further action while you look into your options

If your lenders are intent on making you bankrupt, get debt advice from an expert immediately.

IVA advantages over bankruptcy

Whether an IVA is better for you than bankruptcy will depend on your personal circumstances. It’s always best to get advice from a debt expert.

Having said that, the main advantage an IVA has over bankruptcy is the fact you can protect assets like your home and car.

Bankruptcy advantages over an IVA

The main advantage bankruptcy has over an IVA is that you won’t be asked to pay anything towards your debts unless you can really afford to. This means bankruptcy might be a better option if you don’t have any disposable income to put towards your debts.

What next?

If you’re considering an IVA or bankruptcy, get debt advice. Both solutions can have serious consequences so it’s important to make an informed decision.