Choosing Between Bankruptcy or an IVA
If you are looking to wipe your debts and start afresh then Bankruptcy or an IVA could be your best option. They are two distinct debt management solutions which are both legally binding. Deciding which option to go for can be a tough decision and should be based on your personal circumstances.
In short bankruptcy is best suited if you're in long term unemployment, retired or have a very small monthly income. The reason being, that an IVA requires you to make monthly instalments of at least £200 which lasts for the entire agreement term.
You may also wish to consider bankruptcy if your debts don't reach the minimum IVA criteria of £15,000, or if you have less than three creditors.
Declaring Your Bankruptcy In Future
If you're facing mounting debts then you may think bankruptcy is your best bet as your debts are cleared almost immediately. However, unlike an IVA, you may have to declare your bankruptcy to future employers which leads on to the next question. Do you run a business? Or work in finance? If the answer is yes to either of these then an IVA could be your best option.
If you are made bankrupt you can longer operate a business or work in certain industries including finance. There are also other sectors such as the police force where restrictions are in place for anyone with bankruptcy on their file.
Homeowners
Another area to consider is whether you are homeowner? An IVA will protect your assets such as your house being sold to pay back creditors. Although an IVA doesn't restrict creditors from requesting equity in your property, opting for bankruptcy would almost certainly see all your assets being liquidated.
Another area to consider is the term lengths. Bankruptcy tends to last just 1 year whereas an IVA is usually over a period of 5 years. If you want a clean slate straight away then bankruptcy maybe your best bet. However, it should be noted that both options will affect your credit rating for at least 6 years.
Costs of Bankruptcy
It's also worth considering the upfront costs, an IVA in most cases is free to setup whereas bankruptcy can cost up to £500.
In summary, an IVA is best suited if you can afford to keep up with payments for up to 5 years. If you you're struggling to make ends meet and don't receive a regular monthly income then consider bankruptcy but be aware of any restrictions that could affect future employment.
Related Articles:
- Who Should Consider an IVA
- Alternatives to Bankruptcy
- IVAs - The Good and the Bad Points
- IVA Benefits and Drawbacks
- Brief Bankruptcy Guide
Site is for information only and does not constitute financial advice. E&OE.
