IVA vs Bankruptcy

An Individual Voluntary Arrangement (“IVA”) is a formal agreement between the person owing money (“debtor”) and his/her creditors. The debtor undertakes to make certain payments from income or realise assets, or both, in a full and final settlement of their debts within a defined time period.

An IVA is often used to avoid the stigma around bankruptcy.

Bankruptcy is again a formal procedure, instigated by either the individual themselves or a creditor, where the individual’s liabilities exceed their assets or where an individual is unable to pay their debts as they fall due. A Bankruptcy order may be obtained by any creditor owed more than £5,000.

Listed below are some key points to consider:

Bankruptcy

1.      Credit-ratings do not make much distinction between an IVA and bankruptcy, although information regarding a bankruptcy will remain on an individual’s credit record for 6 years regardless, whereas if an IVA is completed in a shorter period this completion will be registered on the individual’s credit record.

2.      Bankruptcy is a public matter, advertised in The London Gazette.

3.      The assets of an individual subject to bankruptcy proceedings will legally vest in the trustee of bankruptcy. The individual will no longer have legal control of those assets

4.      You may lose your assets, including your house.

IVA

1.      An IVA is often attractive to creditors as the costs of the process are usually significantly less than those in bankruptcy, resulting in greater return to creditors.

2.      In an IVA an individual will retain control of their assets subject to their obligation to raise funds from those assets for the benefit of creditors.

3.      If the IVA fails, your creditors can take action against you and the supervisor of the IVA may be required to petition for a bankruptcy order.

4.      Your creditors may not agree to an IVA, meaning you would have to find an alternative option.

To discuss matters further and for advice on which insolvency procedure to obtain, ensure you speak to a licenced insolvency practitioner such as Chamberlain & Co.

To contact to a member of our team, call 0113-8681203 or email advice@chamberlain-co.co.uk