subject: IVA or Bankruptcy - That is the question [print this page] IVA or Bankruptcy - That is the question IVA or Bankruptcy - That is the question
The Effect on Your Current Assets - Assets such as your home, savings and investments are at less risk than with bankruptcy - but they are still at risk.
But because the debtor usually proposes the IVA, and because creditors are being offered regular payments, they tend to be more flexible.
The home and assets will still be at risk if creditors decide not to exclude them. However, it is more usual for creditors to require savings and realisable assets (endowment policies, premium bonds, ISAs) to be encashed with the home remaining relatively untouched except for the possible release of some of the equity available at the end of the IVA.
The Effect on Your Future Assets - Where the debtor expects to receive an inheritance or already has assets, consideration should be given to any increase in value they may have whilst an IVA is in place.
It may be possible to arrange matters to avoid losing out in such circumstances (such as amending a will) but not by transferring assets in a manner designed to evade your liability to your creditors.
The Effect on Your Future Credit - IVAs do impair your credit worthiness. Whilst the arrangement is in place, credit will be something that you will have to pretty much live without.
Once the IVA has expired, you will still find obtaining new credit facilities difficult. Mortgages, for instance, are available but they usually prefer you to have six or twelve months of space between you and the IVA before lending you money for a house purchase. They will usually also require a larger deposit for the property and charge you an above average interest rate ... since you are considered a greater risk.
The Effect on Your Reputation and Stress - IVAs do not have the stigma that is attached to bankruptcy, so the impact on the reputation is minimal. They will be recorded and added to your credit file, on which they will stay for at least 6 years.
Whilst they are supposed to relieve stress, establishing an Individual Voluntary Arrangement can still be stressful, even if only temporarily. Initiating an arrangement and obtaining final agreement from creditors can still be time-consuming.
Do You Have the Resources - The fees of seeting up an IVA can be upwards of 2,500 plus VAT and expenses and then there will be the administration fees in addition to that.
Most insolvency practitioners will require that at least 750 is paid in advance of setting up the IVA, with the rest added to the arrangement.
All the insolvency practitioners we work with charge no upfront fees. Their fees are met from the payments to the IVA, which means no scrabbling around to pay fees when you can least afford it. This approach also means that the Insolvency Practitioners we work with will only proceed with setting up an IVA for you if they are confident that your creditors will accept it.
IVAs: The Pros
There isn't the stigma or publicity that accompanies bankruptcy.
A business can continue to trade and generate income.
The debtor, via the insolvency practitioner, is involved in the choice of assets made available to the creditors since the arrangement is designed to suit the debtor's situation. All this is providing the creditors are no worse off than if bankruptcy had taken place.
Administration costs should be lower than bankruptcy, enabling higher payments for creditors.
Creditors can still claim tax relief against bad debts just as with bankruptcy.
Creditors who vote against the IVA are still bound by it as long as 75% of the creditors in terms of the amount owed agree to it.
Creditors likely to recognise that they must accept less than all the money owed.
The debtor does not suffer from the same restrictions as those imposed on bankrupts. For example, a debtor can still be a company director, in the armed forces, hold public office, retain their professional status or trade under a business name.
The debtor is able to operate a normal current account, as long as it does not have an overdraft facility.
IVAs: The Cons
Usually only suitable if the debtor has unsecured debts of at least 15,000.
To gain approval, creditors representing at least 75% of the value of the money owed, as well as a simple majority, must agree to the proposed arrangement.
IVAs usually last for five years and payments are typically higher.
The home and assets of the debtor can still be at risk if the creditors decide not to exclude them.
Should the IVA fail, the debtor can still be made bankrupt. If this happens, the costs of the IVA will be added to the debts.
The insolvency practitioner will closely supervise the debtor.
All IVAs are recorded in a public register and will almost automatically appear on your credit file. This could affect any future applications for credit.
