Debts can be very difficult to deal with if you are suddenly left with no income. You struggle to make ends meet and one day or the other, you end up defaulting on your credit card payments, your car loans and even your mortgage. In the end, creditors have to recover their money and they send recovery agents to harass you into paying their dues. The only option left for the harassed consumer is to declare bankruptcy in an effort to get relief from creditors. But is a bankruptcy your only option? Apparently not; according to the insolvency act 1986, you can apply for an I-V-A or an individual voluntary arrangement that will pay off your loans, reduce your loan amount, and keep the creditors off your back without having to declare bankruptcy. This does sound good; but it would be a good idea to compare both options before taking a final decision
I-V-A vs. Bankruptcy: A Closer Look
Both options are a way of declaring financial insolvency and getting clear of debt. In fact, both options do have their own pros and cons and we are listing them here for you.
• Typically, this lasts for about five years. Your insolvency expert or nominee will discuss the terms of your IVA with your creditors and set up the I-V-A. The I-V-A may extend to six years in case it is required.
• After five years, you are free of all debt. All creditors have to abide by these terms irrespective of whether they signed the agreement, did not sign, or did not attend the Meeting of Creditors where the I.V.A terms were decided.
• I.V.A do not affect property or affect mortgage. You do not have to sell assets or give up objects as they are protected under the IVA. Under the I.V.A, court proceedings and legal recovery measures are stopped immediately.
• I.V.As may run for five to six years and they are registered on your credit history.
• You may have to struggle with unsecured debt as well.
• If you miss payments on your I.V.A agreement, the creditors can approach your nominee and proceed with legal action. You may eventually have to face a bankruptcy.
• The bankruptcy process lasts a year and you may have to continue making payments for up to three years to pay off creditors. You could be clear of debt in less than a year.
• The court costs are usually about £705 to £1000 but this is reduced in hard luck cases. It is often the cheapest and quickest way to get out of debt.
• Some agencies also provide free bankruptcy advice and you could retain a few assets.
• You do not need to get creditor approval to file for bankruptcy
• Once the bankruptcy is filed, your creditors cannot contact you for money and they cannot file legal proceedings to recover their dues.
Bankruptcy -- Cons
• You may have to sell assets like your home to pay off debts. This is particularly true for assets over the value of £1,000 if you have very large loans.
• The bankruptcy is announced in newspapers and it is publicly listed on your credit history, the Insolvency Register, the London Gazette, and other financial documents.
• You may be prohibited from some jobs that require a financial background check. For example, you may not be eligible for a government councilor job and you may not be able to work in jobs that deal with money or financial details.
• Your credit history is affected for the next six years but you can wipe your history to clear the bankruptcy after that.
• You lose control of your assets and finances to an official court receiver. You may also lose control of your bank accounts and other deposits depending on your loan amounts.
When you compare an I.V.A and a bankruptcy, an I.V.A seems better as it is private and you are paying off your loans. However, the final decision is in your hands. If you are in debt, we urge you to review your finances and find a good insolvency expert right away. Its not too late to get back on your feet.