The flexibility with an IVA is that you do have to make payments to your creditors but only what you can afford to pay and normally over a fixed term this does require court proceedings but normally you do not have to be present and neither do your creditors if they don’t want to be. You also might not have to loose your home or your possessions and normally is a private arrangement.

Bankruptcy is a lot more serious than an IVA but you are also protected that they cannot take away everything you own to pay off your debts normally a bankruptcy order is a lot more public it will mean you having to go to court and sometimes it is even in certain sections in the newspapers.

I believe now that thanks to new laws in this country that an IVA is so much more flexible and for lots of people an easier and safer option as t offers such great flexibility.

But in saying that I do believe that it does depend on your circumstances and only you can decide what is best and most flexible to suit your individual needs.

Debt Counselling

Informal arrangement – You could consider writing to all your creditors to see if you can reach a compromise. Include a timetable of when you will repay them.

Individual voluntary arrangement – This is a formal version of the previously described arrangement. You would need to apply to the court with the help of an authorised insolvency practitioner. He or she would supervise the arrangement and pay your creditors in line with the accepted proposals

Administration orders – If one or more of your creditors has a court judgement against you and if your total debts are £5,000 or less, the county court could make an administration order. Under the administration order, you make regular payments to the court, which will then pay your creditors. While you are paying the administration order, your creditors can’t take any further action against you to get their money, without asking the court first. Also, you will not have to pay any interest on your debts. You will have to pay a fee for an administration order, but this will be added to the money you already owe and not charged separately.

We’ve all seen the ads for IVA, but it’s not as simple as they make out. You have to be realistic about the money you owe, willing to change your spending habits and have to negotiate how much you pay. You will still have people probing all your finances and will have to be prepared to stick to a tight budget.

Make sure you visit a reputable firm to execute your IVA. There are charities such as the Consumer Credit Counselling Service (CCCS) who are much better qualified than those firms who advertise on TV. Plus charitable and voluntary organisations are much more likely to have your best interests in mind and can therefore advise you better.

An IVA (Individual Voluntary Arrangement) is one possible alternative. An IVA must be individually approved but you may be able to keep your assets and is a less drastic means to becoming debt free.

Consider your case carefully, write to all of your creditors requesting that you come to an “informal arrangement”; a payment plan can then be drawn up with each creditor. This will require a severe “tightening of the belt” and that each payment be stuck to.

One final alternative is an administration order. This is only possible when debts total less than £5000 and one creditor has a court judgement against you. One payment a month is made to the court and an administration cost is added on to your total debts. The one payment is split between your creditors and during the period that the administration order is being paid no creditor can take action against you and all interest is frozen.

IVA
An IVA is the most common way to avoid bankruptcy. If you have assets that you would otherwise lose by going into bankruptcy an IVA can offer a level of protection.

Debt Management Plans
Talk to your creditors directly. If your creditor knows that you are really struggling to meet your repayments they may well suggest a more manageable course of action. After all, if you go bankrupt they lose everything.

Re-mortgage
If you are home owner your property is under threat if you go into bankruptcy. If you are in a position where you have regular income coming in but cannot meet your financial commitments this could be a good alternative.

Debt Relief Order

These were introduced in April 2009 as a way for people with limited assets to declare personal insolvency without declaring Bankruptcy.

Thinking of buying a whole town? It is not cheap and may well lead to bankruptcy. Just ask Kim Basinger. The Batman star planned to turn the town into a tourist attraction, building movie studios and hosting a film festival and paid and initial £20 million for her troubles, but met financial difficulties 4 years later in 1993, and sold her stake. Her loss was untimely as she shortly after pulled out of movie Boxing Helena, which led to the studio suing and winning a cool £5.5 million. Bankruptcy was filed for soon after.

Shane Ritchie may have been the landlord of the Queen Vic on Eastenders a few years back, but if you ever bump into him in your local, he is unlikely to be the one buying the drinks! Ritchie faced arrears on the £8,000- a month mortgage of his £2 million mansion which he eventually sold to avoid bankruptcy. His fresh income was then splashed across a 40th birthday party before putting his final pennies into a film, box office flop Shoreditch. Friends then stepped in to help Ritchie after he failed to pay the mortgage for a year and he had his car repossessed.

Self proclaimed ‘baddest man on the planet’ and former heavyweight champion of the world Mike Tyson earned more than £165 million in his career, which saw him become a household name. Tyson’s career skewed off course however, as he openly admitted to being addicted to a rather unhealthy concoction of, “…chaos, money, jail, drugs, alcohol / liquor, girls & strip clubs”, and his knock-out blow came in 2003, when Tyson declared bankruptcy. ‘Iron Mike’ has long since sold his mansions and fleet of fast cars and now lives in a rented home.

“I spent a lot of money on booze, birds and fast cars. The rest I just squandered.” Famous words from the late George Best, the Manchester United football legend. Indeed, George’s life was one long party. After his drinking problems spilled onto the pitch causing Best’s career at the top to end prematurely, he turned to gambling to ‘fill the void’. Neither his money nor his liver could keep up with his hectic lifestyle however, and Best was declared bankrupt in November 1982, and sadly passed away in November 2006.

1. An IVA. These were introduced by the Government as a way of debt management without resorting to the complex legal process of Bankruptcy. You negotiate a percentage with creditors of how much you can pay back, and if they agree you may end up paying significantly less than before. It’s not an easy option however, so you should seek advice.

2. Debt Consolidation. Instead of paying the huge interest and fees on separate credit, store cards and loans, these firms can give you one loan which means one payment. Although these are advertised heavily on TV, they are rarely suitable as they mean a very long term commitment.

3. Remortgaging. If you have equity in your home, remortgaging can be an easy way of getting some extra cash at a low rate. It does mean however that the length of your mortgage will increase and again, it’s not for everyone. It could be a risky option, given the ups and downs of the mortgage market.

Make a budget; you can never underestimate how much this saves you, work out your monthly incomings and outgoings. If you want to be really thorough keep a diary of all your spending over a month. Cut out all the unnecessary things, cut out the things you can live without and shop around for anything at all you can find cheaper. Every penny helps.

Secondly, cut out the vices in your life, drink, fags, gambling, woman or whatever is your passion for spending too much money unnecessarily. Lastly, don’t buy things that you don’t need, it sounds easy but it isn’t, impulse buying was always a weakness for me and its easy to bang it on a bit plastic and worry about it later. Avoid the worrying about it later part.

Option 1

Review current finances and consolidate debt; take into consideration incoming and outgoing finances and prioritise payments. There are payments that you must not miss at any cost and these include your mortgage and household utilities. Cut out non-essential outgoings and lower loan or credit card payments by consolidating debt into lower monthly payments.

Option 2

Use a debt management company to devise a debt management plan and act as a middleman between yourself and your creditors. Debt management companies will review what you must pay, for instance household builds, and split the remaining money between the creditors. Beware: not all creditors will be willing to go down this route and County Court Judgements (CCJs) may ensue.

Option 3

Many of us will have already seen the glossy television ads promising to wipe away 75% of our debt. Individual Voluntary Arrangements or IVAs is a formal arrangement between the debtor and creditor, arranged by an Insolvency Practitioner (IP). Unlike bankruptcy the IVA should protect your home during the term of the arrangement. However, IVAs are complicated solutions and should be investigated in detail before being pursued.

What is an IVA?

What is Bankruptcy? Bankruptcy is an order from a court that means your finances are controlled by the Official Receiver and there are a series of things you cannot do when you have been made bankrupt. This also means your bank account will be frozen and you will likely lose your home (if you’re a home-owner)

What debt solution is better for you? That’s a tough call that only you can make with the help of some serious debt advice. Overall an IVA seems to offer you much more freedom in having some control over your assets, in my humble opinion (but I’m no financial advisor). When you are bankrupt you can be made to hand over everything that is not deemed essential to your living (eg work items or household items like clothes). With an IVA you can still operate your bank account and have your wages paid in as normal. You still have to provide detailed information on all your income and expenditure and then you will be told how much you have to repay to your creditors. If you do not keep up with this you could be subject to bankruptcy proceedings.

The time in which you will be paying the debt back does vary between these two. The IVA is usually over 5 years whereas the bankruptcy order means you will usually be paying the debt for 3 years (although the bankruptcy order may only last one year, the agreement to pay is 3 years). Although you will be paying for less time with the bankruptcy order, it does affect you for longer as you can not be company director, Managing Director, MP or Judge and you will have severe difficulty in obtaining a mortgage (especially after the sub prime credit crisis in America).

So overall, if you can have an IVA over a bankruptcy order then this would seem the better option for the majority of circumstances but this depends largely on your debt.