With the increasing costs of modern life, it is not surprising that many people resort to loans to help stabilize their financial conditions. However, failing to pay your debt can have severe repercussions. In fact, every four minutes, one person goes bankrupt or insolvent in the UK. If you live in England or Wales, then you have another option other than going bankrupt: an individual voluntary arrangement (IVA). Although bankruptcy and IVAs share common features, they have some core differences.
So, if you have recently found yourself in a tight corner and do not know which option is better, just check the next few key differences.
Process
The first difference between bankruptcy and IVA is that you can file for bankruptcy yourself. You just need to create an account and fill in an online form, mentioning the amount of your debt and monthly income. Nonetheless, before you do that, you need to pay around £700, which may not be feasible if you are really strapped for cash, but you have the option to pay this sum in instalments. Then, an expert reviews your application and decides whether you will be declared bankrupt. Generally, this process takes around 28 days. On the other hand, according to the insightful article on https://www.scottishtrustdeed.co.uk/apply-for-an-iva/, you need an insolvency practitioner to apply for an IVA. The practitioner reviews your debt and income to come up with a repayment plan. They then inform the lenders of your circumstances. Therefore, you will have no direct contact with them. Most lenders accept IVAs more than bankruptcy, as they can get a bigger part of their money back through this method.
Duration
Typically, an IVA lasts longer, as it takes about six years; however, it is more manageable if you have a steady income flow. In contrast, bankruptcy only takes 12 months, and you are absolved of your debts after that period. Yet, if you have an IPA, income payment agreement, you might need to continue paying the instalments for another two or three years.
Your Residence
Bankruptcy has a bigger impact on your residence. In case you are renting a property and go bankrupt, the owner may ask you to leave, especially if you have already defaulted on paying the rent. However, this is not always the case, so check the terms of your lease before you make any decision. Moreover, if you own a house and are declared bankrupt, you may be forced to sell it if you have equity in it, but if you do not, then you can retain your house. On the contrary, your living arrangements are never at risk if you choose an IVA, as your lessor cannot ask you to leave the building. On the other hand, if you own the property, you might need to remortgage it. In case this is not feasible, you will need to make payments for another 12 months.
Your Car
This is where an IVA seems more favorable. If you go bankrupt, you will be forced to sell your car to pay back some of your debt. However, if the car will not get you much money or you need it every day, you may keep it. Nevertheless, an IVA always lets you keep your vehicle, which is a plus.
Work Risk
Both an IVA and bankruptcy can affect your job. Still, bankruptcy has a more significant impact because it is publicized in the Gazette, so your manager may find out. Some positions regard bankruptcy as a cause of discharge. Especially if you hold a managerial position, you might be forced to leave your job. Accountants and people who hold legal positions can face issues in both cases, as they might be required to have no standing debt problems. Yet, generally, bankruptcy is riskier and is more likely to make you lose your job than an IVA.
Credit
You may think that bankruptcy has more bearing on your credit standing, but the truth is that there is no big difference between bankruptcy and an IVA in this regard. In either case, both will stay on your credit file for six years, which can make it difficult to acquire credit without agreeing to strict terms. Yet, after this period, you can improve your credit standing again and apply for loans.
Getting out of debt is not easy, and it involves compromises in all cases. While bankruptcy is often stigmatized, it can be a good choice for those who do not have a steady income and cannot pay instalments for six years. However, an IVA is more preferable because you will be able to retain your home and car. So, before you choose between bankruptcy and an IVA, assess your situation to find the best option.
