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Bankruptcy or IVA – Which is best?
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Bankruptcy or IVA – Which is best?

Bankruptcy or IVA – Which is best?

When choosing between Bankruptcy or IVA your gut feeling might be that going bankrupt should be avoided. But actually for many people it could be the better solution.

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Which is better for your credit rating? Bankruptcy or IVA

This may come as a surprise but when it comes to your credit rating there is actually no difference between Bankruptcy or IVA. Both solutions are recorded on your credit file. Both records remain on your file for the same time – 6 years.

You will find it just as difficult to get new credit whether you start an IVA or go Bankrupt. However, you may be surprised to learn that because bankruptcy only lasts 12 months you can start to repair your credit rating sooner after bankruptcy than if you start an IVA.

You may think you will have a better chance of getting a mortgage in the future if you use an IVA. This is not correct. Lenders are just as likely to give you a mortgage after bankruptcy. In some circumstances you may even be able to do so more quickly.

Your credit rating will be affected just as badly with an IVA as with bankruptcy.

Is Bankruptcy or IVA better if you are a Home Owner?

If you are a home owner the decision about bankruptcy or IVA will largely depend on whether there is equity in your property.

Where you have considerable equity you should probably avoid bankruptcy as it would put your home at risk. An IVA on the other hand would allow you to keep your property although you might have to release equity from it.

In a scenario where you have little or no equity it is likely that you will be able to keep your home if you go Bankrupt. As such in these circumstances bankruptcy can certainly be considered.

Starting an IVA does not necessarily mean that all the equity in your property is protected. You will be obliged to try and release as much as you can in the 5th year.

Which solution is better for your car and other belongings?

In bankruptcy you are allowed to keep a car if you need it. However its value cannot normally be more than £1000. That said in some circumstances you will be able to keep an more expensive vehicle if it is on finance (and the finance company agrees) or you are self employed or have a specific medical need.

You are allowed to keep a more expensive car in an IVA. Generally speaking it is not a problem if the value is above £1000. As such if you want to keep a more expensive car an IVA might be a better option for you.

Your personal belongings are not at risk from either Bankruptcy or IVA unless they are extremely valuable. Most people will be allowed to keep all their household goods if they go bankrupt.

If you own an expensive vehicle that you don’t want to give up you might want to consider an IVA rather than bankruptcy.

Will you have to pay more in Bankruptcy or IVA?

You may have to make ongoing monthly payments towards your debts whether you choose Bankruptcy or IVA. However it is likely that overall you will pay less if you go Bankrupt.

In an IVA you must be able to afford to maintain reasonable payments towards your debts for 5-6 years. With Bankruptcy if you can afford to make payments these will last for only 3 years. So you will save yourself 2 years of payments.

If you have no surplus income and your situation is unlikely to change you will not have to make any payments towards your debts once you are bankrupt. After 12 months your debt is written off.

If your income is made up solely of benefits you will not have to make further payments towards your debts if you go bankrupt.

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2 thoughts on “Bankruptcy or IVA – Which is best?

  1. Joel Tennuchi says:

    I am due to start an IVA within next 3 months. Have over 35K of debts and no assets or equity.

    Both my wife and I work in Customer service and it will take 13 years to clear debts off or via IVA be about 6 years and will pay back about 22K over length of IVA.

    If we do not start the IVA would bankruptcy be an option for the both of us. The 35K is joint debts about 20 for me and 15K for wife.

    Can you advise.

    1. Hi Joel

      If you have no assets and are not home owners (or you do own a property but have no equity) bankruptcy would be a faster and overall cheaper way for you to get out of debt.

      From what you have said it seems you have disposable income of around £300/mth. If this is the case you would still be required to pay this towards your debt for 3 years (£10,800 in total). In addition both you and your wife would have to go bankrupt (there is no joint bankruptcy) which will cost £680/person. This will add another £1360 giving a total of £12,160.

      As such going bankrupt compared to an IVA would save you approx £10,000. Given you have nothing to lose I would say it makes more sense for you both to go bankrupt rather than start an IVA. However before you make your final decision I recommend speaking to an expert. Don’t hesitate to give me a call if you want to talk it through (0800 044 3194).

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