What Is An IVA & How Is An IVA Different To Bankruptcy?

IVA’s have been plastered all over the UK media for years now. However the adverts that fill up television, radio, newspapers and the internet don’t really explain what an IVA is. So what is an IVA and how is an IVA different to a bankruptcy arrangement?

What Is An IVA?

An IVA otherwise known as an individual voluntary arrangement, is a government approved arrangement that allows people who can no longer afford to repay their debts to write off a percentage of that debt. How much of the debt can be written off is dependant upon your personal circumstances and the agreement of the creditors you owe money to. One thing you will likely have heard from all the media hype, is that you can write off up to 75% of your debt. Although 75% of your debt is the maximum amount a creditor is likely to write off in an IVA agreement, this percentage is not guaranteed and is again dependant on your personal circumstances.

So How Is An IVA Different To Bankruptcy?

Protection Of Assets

When a person has reached the point of considering bankruptcy, one of the biggest worries they often have is that they might lose their house and belongings. This is a genuine worry because in bankruptcy your assets are put under scrutiny and can be sold off to repay your creditors. With an IVA though things work differently.

Once you’ve entered into an IVA arrangement with your creditors, your assets including your home are protected as long as you keep up with the repayments (You may have to release some of the equity in your property). If you don’t keep up with your repayments however, the conditions of your IVA will have been broken and your creditors will again have the right to push for bankruptcy and the liquidation of assets.

Credit Rating

It’s generally considered that an IVA does less harm to your credit rating than bankruptcy in the long term, as it shows your willingness to repay at least a portion of your debt and stick to an arrangement. I’m a little sceptical of this fact myself as I feel that in times of short credit supply any major mark against your name is likely to stop you from obtaining credit. If you do decide to inquire about an IVA though it’s worth asking about this as you may want to obtain credit again at some point in the near future.

Career Position

An IVA is definitely a better option than bankruptcy when it comes to your business or career. If you are the director of a company or work in a professional financial role, an IVA will allow you to continue on in your current role, bankruptcy will not!

Bank Accounts

Although you might lose your overdraft facility an IVA will allow you to keep your bank account. In the case of bankruptcy however all your bank accounts will be closed.

Speak To A Debt Advisor!

Industry standards and government legislation can change at any time, so be sure to get professional debt advice before deciding any course of action. Also each persons circumstances are completely unique. What’s right for one person may not be the best course of action for you!

If I’ve Missed Anything You Feel To Be of Importance, Please Leave A Comment Below.

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2 Responses to What Is An IVA & How Is An IVA Different To Bankruptcy?

  1. Jason @ WSL says:

    Interesting…it almost sounds like our Chapter 13 bankruptcy here in the states where you get on a 5-year repayment plan (payments are determined by your budget/disposable income). Whatever debt isn’t pay off in 5 years is then forgiven.
    Jason @ WSL recently posted..What to Get Your Husband for Christmas – Ideas for Every BudgetMy Profile

  2. Very interesting. Like Jason said, it sounds a lot like Chapter 13 here in the States that gives you a plan to work around. I like that it gives you the opportunity to protect your assets.
    John S @ Frugal Rules recently posted..November Blog Goals UpdateMy Profile

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