Bankruptcy may not be your only option for getting out of serious debt. It is a very serious step with long lasting consequences, so it is worth taking some time to consider all your options before making a decision about whether it is right for you or not. If you live in the UK, have debts over £15,000, are in steady employment and can afford to make a reasonable payment each month toward your debts, then it may be possible to set up an individual voluntary arrangement, or IVA.
This is an agreement between your creditors whereby you will make payments to pay back a portion of what is actually owed. It is usually for situations where you cannot afford to repay the full amount, so what happens is that your payments are based on what you can afford, and anything that has not been paid back by the end of the IVA is written off. This is a formal, legal agreement which is binding on all parties. You therefore have a choice between trying to set up an IVA or filing for bankruptcy.
The Advantages Of Using An IVA Compared To Bankruptcy
Before deciding on an IVA or bankruptcy you should know the pros and cons of both. The main advantages of an individual voluntary agreement are as follows:
You get protection from court action by the creditors, who are not allowed to sue you to recover their debts once the agreement is in place. In fact they are not allowed to contact you at all and have to go through your trustee.
If you can get creditors representing at least 75% of your debts to agree to setting up an individual voluntary arrangement, any other creditors are bound to the agreement as well, which is useful if you have any who are reluctant to join the scheme.
You do not have the stigma and publicity that comes with bankruptcy because this option does not have to be publicized in the same way. Your situation is therefore kept private.
You only have to pay back what you can actually afford and the rest is written off.
Your profession is not endangered because there are not the restrictions that there are with bankruptcy.
You have more control over which of your assets are included in the agreement, so you are far less likely to lose your home than if you were to become bankrupt.
You can still keep your bank accounts while the agreement is in place, but you will not be allowed to have credit or to borrow any money.
The Effects Of Bankruptcy:
Bankruptcy only normally lasts for one year and you can file for it when you are just £750 or more in debt. Your debts are gone immediately upon making the bankruptcy order and once the process is over you are free from all your previous debts. You have no responsibilities to them any more and can start again.
One of the big concerns about being bankrupt is that you may be required to sell your home in order to give money to your creditors. If you have a steady income you will be ordered to pay a certain amount each month towards your debts. Any money that you inherit during the process will also be taken to pay your creditors and your pension could also be affected.
For most people, and IVA is the better bet, but the sensible thing to do is approach a few reputable debt management companies and get them to analyse your situation and advise you on the best option for your particular situation.
Get more help with choosing between an IVA or bankruptcy on the author's help with debt website, which offers free, unbiased advice on a range of debt related issues including recommended specialists for dealing with IVA debts and information on debt settlement, budgeting, bankruptcy and borrowing money.