When choosing a solution between bankruptcy and IVA you need to know what they actually are and how they work.
What is an IVA and how does it work?
An IVA is an Individual Voluntary Arrangement that is signed between an individual and their creditors. This agreement is signed to help them pay off their debts at an affordable rate. It is also considered to be an alternate option to bankruptcy. It is a private agreement that is legally binding. The term period of the agreement is usually 5 years or is set according to the creditor and the individual. During this period the individual is supposed to pay off the debt in fixed instalments. These payments are based on the income of the individual. It would be higher for an individual with more disposable income than one with a lower disposable income. Due to the legally binding nature of the agreement both the creditors and the individual must keep to it until the end of the period.
An IVA is a form of insolvency yet it is different from bankruptcy. It is proposed through an insolvency practitioner who represents you in front of the creditors and acts on your behalf to seek a vote that accepts the IVA from your creditors.
In order for an IVA to be agreed it needs to be accepted by 75% of your creditors by value owed. An IVA protects your assets from being seized by your creditor or from taking any other legal action against you during the periods of repayment
An IVA clears all your unsecured debts. These debts include all your personal loans, credit card bills, etc. An IVA however does not cover secured debts such as legal fines, court obligations, mortgages or any other form of secured debts.
Effects of IVA on your work, home, assets, and savings:
IVA protects your home by saving you from having to sell it off to pay your debt however you are required to pay out the available equity through remortgage. All household items and personal possessions are protected.
IVA lets you keep all of your other assets that are not required for your everyday living however assets that fall under luxury such as extra cars, motorcycles, second homes are given off to balance the money for your IVA fund.
Since an IVA is not the same as bankruptcy it will allow you to continue running your business or continue practising your profession.
How does an IVA reflect on other parts of your life?
Since an IVA is not published in the press they are pretty much a private affair so if you’re in any profession where you are not the boss your employer will not be informed of it. However, since the IVA register holds all records they are available to the public if they wish to look it up. Any new profits or financial gains that are made must be brought to the attention of the insolvency practitioner so that they can be adjusted in the IVA fund.
After an IVA ends all the outstanding debts are written off by the creditors and a completion certificate is submitted to the creditors that inform them of the completion of your contract and to update your credit file.
Bankruptcy and what it entails
In simpler terms bankruptcy is basically when a person lawfully declares that they are unable to pay their debts.
After the declaration of bankruptcy the court issues orders against you which entitles you to be interviewed by the official receiver and the trustee in bankruptcy the latter of which comes in if you had any assets in your name. The trustee in bankruptcy then sells off these assets to pay off any outstanding debts. In the case that you are able to make instalments of your payments, the official receiver will require you to make these payments out of your income for up to 3 years or so.
Under bankruptcy, all assets are open to sale including your home, cars, caravans, luxury goods or shares. Bankruptcy does not clear all your debts; it leaves out students loans, fines and council tax arrears. Pensions are kept protected in bankruptcy.
The trustee however does allow you to keep assets that enable you to earn a living. In the scenario that you are a practising professional, your license may be suspended and if you are running a business you may be asked to resign from your existing position.
The declaration of bankruptcy is published in the press.
The duration of the bankruptcy is approximately 12 months. however, it also depends on the debts which were incurred through excessive spending. This can also have your bankruptcy last for up to 15 years.
What to do about it?
While dealing with serious debt crises people often feel hypertension and isolation. It takes a lot of time and effort to figure out which solution to choose so it’s better to choose a specialist company that can help you deal with your debt crises and find a solution that best suits you.
Money Advisor has helped find 100s of individuals with the right solution to their debt problem. They have leading specialist that can you provide you timely support with the procedures, and guide you through the process of it. So if you also have a hard time choosing, Money Advisor is the right place to book an appointment.