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Advantages of an IVA over bankruptcy
Putting it simply, an IVA is considerably better than declaring bankruptcy. In short, these are the main reasons why this is so.
Firstly, there is no social stigma associated with an IVA. Of course if everyone knew there would be, but unlike bankruptcy (which is advertised) you are allowed to keep in the shadows with the IVA.
Secondly, an IVA does not affect your ability to trade. With a bankruptcy on your record, borrowing becomes tough, whilst with an IVA is easier to borrow.
Thirdly, the fees associated with an IVA are considerably less for the creditor and the borrower than the fees for bankruptcy. This is a large positive considering the financial implications.
Fourthly, with an IVA the individual in debt can keep their assets and save them from forfeiture. Unlike bankruptcy there is open access to the individuals home, and assets. This proves to be the defining reason as to why an IVA is considerably more favourable compared to bankruptcy.
IVA or bankruptcy?
If you are having trouble meeting your debt repayments you should always seriously consider an IVA (Individual Voluntary Arrangement) before you consider Bankruptcy. IVAs are by far the lesser of two evils.
With an IVA an Insolvency Practitioner will negotiate with your creditors a realistic repayment plan. They will be fair to both parties on this and not negotiate a repayment you can’t afford. They may also negotiate a reduction in the total amount of the debt you repay.
However, if you are made, or make your self bankrupt then you will still have to pay your creditors a certain amount. This will be decided by the Official Receiver, who is the person that will oversee your bankruptcy. The Official Receiver will go through your personal accounts, look at what money you have coming in and what you have going out in the way of necessary expenses, and any left over will be used to pay off your debts.
In addition to this, you will certainly lose your house if you own it or it is currently mortgaged. If there is equity in your house, that is it can be sold for more than you owe on your mortgage, it will be sold. Your mortgage will be paid off and the surplus will be used to pay off your debts. If there is no equity in your house the mortgage company will repossess it, as bankruptcy is a legal declaration of you not being able to pay your debts.
Other luxury items you own may also be sold to pay your debts. The Official Receiver won’t take your bed or cooker, but if you have an expensive item, such as a large plasma screen TV, they make take it and sell it. They may also take your car too, even if you need the car to get to work they may decide that it is too expensive and you could get to work with a cheaper one. In this case your car will be sold and you will have to buy a cheaper one and the difference will go towards paying your debts.
So you should always consider an IVA first, but in either case you should always seek professional advice before taking either course of action.
IVA more flexible than bankruptcy?
So why is an IVA more flexible than bankruptcy? Well I guess it all depends on your individual circumstances, the amount of money owed, your income and your lifestyle. There are many positives to both an IVA and bankruptcy of course dependant on what suits your individual needs.
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.
Alternatives to Bankruptcy
Debt Counselling – If you want a sensible alternative to bankruptcy but are unsure where to turn, you may be an excellent candidate for credit counselling. As rates of consumer debt have grown over the past decade, debt counselling services have grown along with it. The best debt relief services can help consumers to dig themselves out of the hole they find themselves in.
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.
Is IVA less daunting than bankruptcy?
IVAs can be a more flexible solution to money problems, and can be a lot less daunting than bankruptcy. Bankrupt people still face the stigma of going through courts; they have their names in the paper and will forever be excluded from certain types of work. But with an IVA, although not a light choice to take, you will be free from your debts in five years with less impact on your credit report.
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.
Bankruptcy is an Extreme Last Resort
Bankruptcy should always be viewed as an extreme last resort, yes all your debts will be cleared but all of your assets; your house, your car, anything of value which you own can be sold off to your creditors. As well as this you will be declared bankrupt in the newspaper and this can affect your future career chances. There are a number of alternatives which could be suitable for some people.
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.
Bankruptcy And The Alternatives
If you are deeply in debt then it may be that bankruptcy appears to be the only option. There are others and below I briefly mention 3 of them. If you are thinking of bankruptcy then your local Citizens Advice Bureau can advice you of your options and who to speak to next.
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.
Don’t Go Bankrupt Before Reading This!
Instead of declaring bankruptcy, how about trying these commonly used debt solutions….
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.
Three Steps Away from Bankruptcy
Bankruptcy should only ever be seen as a last resort. The consequences are serious, affecting the person’s ability to retain their home or earn a living through their own business, for up to 15 years. The increased pressure from being in such a dire long-term situation puts pressure on the person emotionally, effecting personal well-being and relationships. Possible alternate avenues to clear debt include:
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.
Pros and cons of IVA
At MoneyStand, we frequently talk about debt solutions to offer some advice to anyone landing on the blog looking for some support and advice. Judging by UK debt news, theres been some increases in the amount of people getting IVAs, so this week I’m going to talk about Individual Voluntary Arrangements. An Individual Voluntary Arrangement, or IVA is a formal agreement with your creditors to pay some or all of your debts. An IVA will normally last five years, after which you will be debt free as a large proportion of your debt may be written off.
IVAs offer a number of advantages over bankruptcy. You will probably be allowed to keep your home, you can keep the matter private rather than having it announced in a newspaper, you can still hold a current account (albeit one without an overdraft) and you can still act as the Managing Director of a company or hold a public office. This means that the stigma of IVAs is much less than that of bankruptcy.
However there are also a number of disadvantages. Firstly, an IVA is only an option if you owe more than £15,000, and creditors representing at least 75% of the amount you owe must agree to the IVA arrangements. If your IVA fails you may still be made bankrupt, and the cost of your IVA will be added to your debts. Finally, your finances will be heavily scrutinised by an Insolvency Practitioner, and your IVA will appear on your credit file, thus affecting any subsequent applications for any type of credit.