According to the latest UK government figures the number of people declared officially insolvent in England & Wales during Q2 2013 was 25717. This figure is 6.1% lower than a year ago in the same quarter in 2012.

Significantly though the figure is up 2.8% compared to Q1 2013. The Number of people declaring bankruptcy fell again (by just over 20% compared to Q2 2012) but this was more than offset with an increase in the number of people starting an Individual Voluntary Arrangement (IVA).

IVA numbers rose 6.8% in Q2 2013 compared to Q2 2012 and 9% compared to Q1 2013. The number of people starting IVAs has now risen in each of the last 3 quarters. We ask why this might be and whether people may be making short sighted choices about dealing with their debts which could cost them in the long run.

Is Bankruptcy is too expensive?

One of the problems you will face if you decide to go Bankrupt is the upfront fee. This can cause a real issue if you are already struggling to make ends especially if you are a couple as the fees are then double and they will have to be paid in cash on the day.

Clearly faced with having to find these large fees up front you may be forced to seek a cheaper alternative and start to look to the option of an IVA.

The cost of starting an IVA has dramatically reduced

The cost of starting an IVA has fallen significantly over the past couple of years. There are now no upfront fees to pay and for debts as low as £8000 the agreement can be put in place with a monthly payment as low £100 a month.

Even if you are a couple with debts these can be combined into a joint IVA with no increase in the monthly payment you have to make.

This is therefore clearly attractive when compared to the up front costs associated with Bankruptcy. If you only have disposable income of £100 a month it could take you more than a year to save for the cost of two people to go through this procedure.

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Starting an IVA over bankruptcy might be a costly mistake

Choosing an IVA over Bankruptcy simply to avoid the large upfront costs is short sighted. It is important to remember that for an IVA to work you need to be able to maintain your agreed monthly payment for 5 years and possibly 6 if you are a home owner.

In comparison if you declare yourself Bankrupt as a couple you will have to find £1400 up front but will then only have to pay an income payment each month for three years. As such the total you pay through the life of bankruptcy will far less overall.

You also have to factor in the fact that if your circumstances change while you are in your IVA and you can no longer afford the monthly payments the Arrangement will be at risk of failure which can mean that you will be back at square one owing all of your debts.

On the other hand if you go bankrupt and start off having to make a payment towards your debts but then can no longer afford to do so the payments simply stop but your debts are still written off in full.

How to pay for the cost of Bankruptcy?

Although you might like the idea of paying less back towards your debts overall if you go Bankrupt the fact remains that you still have to find the upfront fee from somewhere. So what are the options you can use to do this?

The first option is to save the money your need. You should stop paying all of your unsecured creditors and what you save in this way can be put towards your fees.

While you are saving you will start getting collection hassle form your creditors. Ultimately however when you go Bankrupt any action that has been taken against you will be overturned (although if you are a home owner you do need to take advice about the risk of charging orders).

The second option is the possibility of borrowing the money you need.  However if borrowing is not an option you could also consider selling an asset. One of the things you should consider is your car.

If you need a car you are allowed to keep one if you go bankrupt. However it can only be worth a maximum of £1000. As such if yours is worth more than this one option is to sell it and buy a cheaper one. You can then use the remaining money to pay for your Bankruptcy.