How can an IVA be used to avoid bankruptcy?

We consider whether individual voluntary arrangements can be used to avoid going bankrupt and what you need to consider before using an IVA service.

If you have debts that you simply cannot repay you may be considering declaring yourself bankrupt.

However before going down the bankruptcy route it might be sensible to consider an alternative solution called individual voluntary arrangement (IVA).

The IVA debt solution is seen as the formal alternative to bankruptcy and may provide you with some significant benefits.

Protection for your property

If you are a home owner, declaring bankruptcy will mean that you will lose control of your property.

The official receiver will automatically be assigned the title of your property which they can hold for three years. If there is any equity in the home it can be force sold to realise this for your creditors.

Individual voluntary arrangements protect your property from the official receiver. Your home cannot be sold without your agreement and your creditors are not allowed to take further legal action such as applying for a charging order against the property.

Ideal for company directors

If you are a director of a limited company you will have to resign if you go bankrupt. For this reason as a director you will want to avoid bankruptcy if you want to continue running your business.

The IVA service is the perfect alternative to bankruptcy for company directors because you do not have to resign from your position and can continue running the business.

It is common for directors to have debts owing to suppliers and HM Revenue and Customs (HMRC) and these can also be included in individual voluntary arrangements.

Despite the benefits of an IVA over bankruptcy, there are some other things you need to bear in mind before choosing the IVA service.

IVA payments last 5 years

Individual voluntary arrangements involve making payments towards your debts for five years.

The amount you pay is based on your disposable income and generally will have to be at least £200 a month unless you can add additional lump sums to the agreement.

On the other hand, if you go down the bankruptcy route you will not be asked to make any payments unless you can afford to do so.

Of course if you can afford to make a payment of at least £200 a month, you will also have to do this in bankruptcy but the payments will only last for three years compared to the 5 in the IVA.

Home equity release

The IVA service will provide protection for your property compared to the risk you take if you declare yourself bankrupt.

However, you need to understand that in an IVA if there is equity in your property you are still obliged to release it for the benefit of your creditors.

Where you are unable to release the equity you have because you simply cannot remortgage, you may have to extend your IVA payments for 12 months to compensate.

Further information

Clearly individual voluntary arrangements can be used to avoid bankruptcy. However whether the IVA is a better solution for you will depend very much on your personal circumstances.

It is certainly not true to say that an IVA is a better option than bankruptcy in all cases.

A good place to start finding out more information about which solution would be best for you is the internet. There is a lot of IVA online advice and support through debt forums.

You should also speak to a debt expert. They will be able to give you both IVA advice and bankruptcy advice and explain how the two options will affect you so that you can make an informed decision.