Trying to choose between an IVA or Bankruptcy? An IVA is not always the best option. If you are not a home owner, you may have little or nothing to lose by going bankrupt and could be debt free in 1 year.

Included in this article:

• Which option has the highest monthly payments?
• How will your home be affected?
• What happens to you car and other belongings?
• Which has a worse affect on your credit rating?
• Who will find out?

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IVA or Bankruptcy – Which option has the highest monthly payments?

Whether or not you choose an IVA or Bankruptcy you will need to calculate what you can afford to pay towards your debts each month. This is known as your surplus or disposable income.

You have to pay pay your surplus income into an IVA for 5-6 years. The minimum payment is usually £100/mth. This is not fixed and will increase during the Arrangement if your income goes up or expenses fall. 

If you go bankrupt and have little or no surplus income, you will not have to make any further payments towards your debts. You will be discharged after a year and your debts are written off.

Where you do have a surplus, you will still have to pay this towards your debt. However the payments only last 3 years (2-3 years less than an IVA).

Bankruptcy could well be a better option if you have no surplus income. In these circumstances you will not have to make any further payments towards your debts.

How will your home be affected by either an IVA or bankruptcy?

If you are a home owner, the IVA and Bankruptcy solutions are significantly different. Generally speaking an IVA will allow you to protect your home if there is equity in it. Going bankrupt is likely to put it at risk.

An IVA allows you to retain ownership of your home and it is not at risk of having to be sold. However you will have to agree to releasing equity if it is possible to do so in the 5th year of the Arrangement.

With bankruptcy your share of any equity in your property must be realised for your creditors. Where the equity is significant, this could result in you having to sell your home if the cash cannot be raised in any other way.

If there is no equity in your property, it is unlikely to be at risk if you go bankrupt. In these circumstances, bankruptcy may still be a sensible option for you.

IVA or Bankruptcy – What happens to your car and belongings?

In terms of your household belongings there is little difference between IVA and Bankruptcy. With both solutions you are allowed to keep your personal possessions unless they are extremely valuable.

However there is a difference when it comes to your car.

An IVA will allow you to keep a more expensive car. Generally speaking the value of your vehicle is not questioned unless it is unreasonably expensive.

This is not the same with Bankruptcy. The general rule is that you are allowed to keep a car if you need it. However its value cannot be more than £2000. If your vehicle is worth more you are likely to have to sell it and get a cheaper one.

If you have a car worth more than £2000 which you are reluctant to change for a cheaper one, an IVA might be a better option for you.

Which solution has a worse affect on your credit rating?

You may be surprised to learn that both an IVA and Bankruptcy effect your credit rating in exactly the same way. Both will negatively affect it for the same length of time.

Whether or not you start an IVA or go bankrupt a record of the fact is put on your credit file. This remains there for 6 years regardless of the solution you use. It negatively affects your ability to take new credit during this time.

After the record has come off your file you will have just as much chance of getting new credit or a mortgage whether you went bankrupt or used an IVA.

It is a myth that your credit rating will be more badly affected by going Bankrupt compared to doing an IVA.

IVA or Bankruptcy – Who will Find Out?

You may believe that an IVA is more private than Bankruptcy. Actually this is not the case. Both solutions are the same in this regard. Your friends, family and employer are highly unlikely to find out about either unless you tell them.

Despite what you might have read Bankruptcy is not advertised in your local newspaper. This practise was stopped in 2009 (unless you live in Northern Ireland).

Both solutions result in your name and address being published in the Insolvency Register. This can be publicly accessed via the internet. As such anyone can carry out a search on your name and discover your situation. That said, it very rarely happens.

If you go bankrupt, the insolvency register record will be deleted after 12 months (when you are discharged). It remains for the entire time you are in an IVA which is likely to be 5-6 years unless you settle the Arrangement early. 

One difference if you go Bankrupt is that your details are permanently recorded in an archive called the Gazette. The Gazette is accessible via the internet. However, as with the insolvency register, very few people even know it exists.

Need more advice about whether to start an IVA or go Bankrupt? Give us a call (0800 077 6180) or complete the form below. Its free and confidential.