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COVID-19: We have answered some of our customer's most frequently asked questions
Our advisors frequently receive phone calls from those asking about bankruptcy. Yet, in many of these cases, this only occurs because that solution is more widely known than the other options available to them.
As our experts always attempt to find the best solution possible, some instead decide an IVA (individual voluntary agreement) is a better alternative than bankruptcy. Considering how often this occurs, we thought we would explain how they’ve come to this choice:
Bankruptcy is usually the preferred decision for those seeking a ‘fresh start’. This option writes off all or most of an individual’s debts and is typically best suited for those who cannot repay creditors. Bankruptcy usually lasts for about a year and – during that time – several restrictions may apply. However, once resolved, you should have more control over your finances.
An IVA – as opposed to bankruptcy – is an agreement to pay back your creditors over time through affordable monthly payments. This period is usually between five and six years but once the IVA is resolved, any outstanding debts will be written off.
Bankruptcy and IVA are both forms of insolvency. This means that – regardless of which option you choose – your name will be added onto the insolvency register. This is a legal database containing current and recently completed agreements. Although searchable by anyone, it’s only likely to be used by creditors as opposed to members of the general public.
Both options also stay on your credit file for six years starting from the date they began. Consequently, during this time, you might find it difficult to acquire additional loans or credit.
Although they have their downsides, an IVA and bankruptcy both write off significant parts of your debt. In addition, considering their status as legal debt solutions, creditors aren’t permitted to contact you – granting you peace of mind.
Bankruptcy and IVAs differ on a few key areas, for example:
As part of bankruptcy proceedings, your home might need to be sold to raise money for creditors. However, with IVAs this situation is less likely to occur.
If you rent property during an IVA this solution should have little effect on your home. However, some landlords include clauses in tenancy agreements which state that bankruptcy will result in eviction. Consequently, it’s worth reviewing your contract before deciding on either of these options.
Bankruptcy is resolved quicker than an IVA, with this option only lasting about a year. An IVA, on the other hand, generally takes between five and six years to conclude.
Unless your vehicle is essential (for example, you need it as part of your job) it may have to be sold during bankruptcy proceedings. Your car should not be affected by an IVA though.
Your employment status could be affected by either of these two options. However, the risks are greater with bankruptcy. For example, in some industries, contracts may state that bankruptcy is cause for instant dismissal. Furthermore, if you own a business, that might also be sold off to raise money for creditors.
Generally speaking, bankruptcy will affect your job – and future employment prospects – more than an IVA.
Bankruptcy and IVAs have several things in common. However, an IVA may be the better choice if:
Although there are many pros and cons to an IVA, if these three options don’t apply to you, then bankruptcy might be preferable.
Bankruptcy is frequently viewed as a ‘last resort’ option. However, similar to many financial solutions, it could be the best outcome for you depending on your circumstances. Regardless, before making the decision, you should always find out for certain from a specialist financial advisor.
This is a matter we deal with regularly. If you’d like to take control of your debts, then we’d be happy to confidentially discuss your options. To find out more information, simply call us today or get in touch via the contact form.
Debt write off applies to unsecured debts and on completion of an IVA. A debt write off amount of between 20% and 80% is realistic, however the debt write off amount for each customer differs depending upon their individual financial circumstances and is subject to the approval of their creditors.
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