Bankruptcy or IVA – Which is best?

James Falla

• 23 Nov 2021

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.

Included in this article:

• Which solution is better for your credit rating?
• What if you are a home owner?
• Which is better for your car and other belongings?
• Will you have to pay more in Bankruptcy or IVA?

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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?

In an IVA, you must be able to afford to maintain reasonable payments towards your debts for 5-6 years. The minimum is normally £100/mth.

With Bankruptcy no further monthly payments may be required at all. If you have no surplus income and your situation is unlikely to change you will not have to make any further payments. After 12 months your debt is written off.

If you can afford to make payments these will last for only 3 years. So you will save yourself 2 years of payments compared to an IVA.

We are happy to speak to you and explain whether bankruptcy or an IVA is best for you. Call 0800 044 3194 or complete the form below.