IVA's and Bankruptcy - Knowing the Difference
Both Bankruptcy and Individual Voluntary Arrangements are both serious methods of dealing with crippling financial problems. They are both worth measured consideration as they have different advantages and disadvantages that may suit different individuals.
Who does an IVA suit?
Most IVAs are taken out by young professionals, with reasonably high regular incomes and a property or other asset to protect, who have seriously fallen out of step with their finances. An IVA is best for those who owe more than £15,000. An IVA is a legally binding agreement. The debtor makes a promise to pay the IVA a single affordable monthly repayment each month, after which the debt is written off. The IVA lasts between three and five years, depending upon a number of factors. If the debtor fails in this agreement, all of the collected money is given to the creditors and the debt returns to its original amount, regardless of how much has been paid! An IVA would suit someone who would regularly be able to pay more than £200 per month.
Who does a Bankruptcy suit?
A bankruptcy tends to suit someone who is struggling to make any repayments at all (due to no job, or irregular work), has no saleable assets, works outside of the financial sector and cannot commit to a regular payment. Bankrupts tend to be in their thirties, with debts built up, or a failing business. Debtors lose control of their assets and it best suits people with little or no assets. The debtor may keep a car if they can convince the Official Receiver that it is to be used for employment purposes. Any windfall payments or lottery wins will become under the control of the Official Receiver, who will use them to pay back your creditors. Bankruptcy only lasts for one year, but remains on your credit file for six years. Bankrupts can no longer be a company director, or work within certain employment sectors. An individual debtor does not need to have masses of debt before they can become bankrupt, a creditor may petition for your bankruptcy for as little as seven hundred and fifty pounds.
To find out if an IVA would be suitable for you, please use our debt calculator.
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