IVA or bankruptcy?

Choosing the right debt solution isn’t always easy. If you simply can’t afford to repay your debts, two of the more common options available are bankruptcy or an IVA (Individual Voluntary Arrangement).

Both solutions can help with unaffordable debts – but there are some key differences between the two that mean they are generally more suitable for different circumstances.
The case for an IVA

An IVA is a formal and legally-binding debt solution. It is an agreement (with most or all of your unsecured creditors) that allows you to repay a portion of your unsecured debts over a number of years, and on successful completion of the IVA any remaining unsecured debt will be written off.

Repayments typically take place over five years, in which time you’ll be expected to pay as much as you can – whatever’s left of your monthly income after other essential expenses have been dealt with will go towards your IVA.

The main advantage of an IVA over bankruptcy is that it shouldn’t result in the sale of your home to cover your debts. However, you may still be required to release some of the equity in your home in the final year of your IVA.

You’ll also need to consider the impact of an IVA on your credit rating – although this is an effect of any debt solution that involves writing off or reducing your debt repayments.
The case for bankruptcy

Bankruptcy is also a legal agreement, although your lenders do not vote for or against it (like an IVA). Instead, you must petition for your own bankruptcy at a County Court.

If it’s approved, you will no longer be responsible for any included unsecured debts. However, if you’re a homeowner your home may have to be sold and you may be expected to make monthly payments for up to three years if you can afford to do so.

Like an IVA, bankruptcy will have a big impact on your credit rating.
How do I choose between the two?

A lot of people find this difficult. If you can’t commit to regular payments, bankruptcy may be most suitable for you. But there are a number of impacts to consider, which is why it’s so important to discuss all appropriate options with an expert debt adviser to establish which solution is better for your immediate and longer-term circumstances.