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A bankruptcy is a Bankruptcy Order that allows your creditors to get paid by forcing the person who is bankrupting into liquidating their assets in a court-ordered way. The repayment plan outlined usually lasts 12 months, although it can be extended if the court finds you haven't cooperated fully during the bankruptcy process. Bankruptcy is a very public matter in the UK and can cost you your home, your profession, or your business. However, if you want to save some assets, keep things more private, and not lose your profession, you can still opt for an Individual Voluntary Arrangement if you can get 75 per cent creditors to agree to the terms of the IVA. Both options will help debtors get out of difficult debt situations, but they both have different rules for how to engage each option and how they are carried out, even if the final result is the same: The complete cancellation or settlement of all unsecured debts. IVA contracts can be less severe For certain professionals who are at risk of losing their livelihood because they will not be able to practice them after they are declared bankruptcy, an alternative is to set up an IVA contract. The terms of debt repayment are lengthier, up to five years, but it can help debtors avoid the more severe consequences faced by some people who have a lot to lose by doing a bankruptcy instead. If someone has a paid off home, they can be forced to sell it under bankruptcy laws to settle debts. However, if they want to try to keep certain assets, a contract can be negotiated with the creditors to keep certain assets even as they service the debt they owe. An IVA is a formal debt proposal What is bankruptcy when compared to an IVA? An IVA is a formal debt proposal that the debtor offers to their creditors as way to settle the debt without landing in bankruptcy court. The proposal is set up with the help of an Insolvency Practitioner (IP) who then presents the proposal to your creditors. The plan is negotiated and settled if 75 per cent of the creditors agree to it. Then, all creditors are bound to the terms of the agreement. Similarities with bankruptcy What is bankruptcy benefits that are shared by an IVA? As long as the contract is valid, your debt accounts are frozen and the creditors are no longer allowed to demand payment, which is similar to a bankruptcy. You then make the monthly payments agreed upon in the IVA to settle the debt. In this way, a borrower can avoid defaulting on loans, but also pay only what they can afford. All kinds of unsecured debt can be included in the IVA from credit cards to personal loans. At the end of the repayment term, the leftover debt is usually cancelled, just like in bankruptcy. Differences with bankruptcy What is bankruptcy differences from IVAs? Bankruptcies are sometimes forced on people by their creditors, whereas an IVA is strictly voluntary. An IVA may be published on the insolvency service website, but it is not advertised in newspapers, like bankruptcies. This makes it a much more private matter. If you want to keep your house or business it is much more possible with an IVA than with a bankruptcy order. Which option should you take? There are advantages to a bankruptcy because it is more short-term than an IVA. However, the consequences of a bankruptcy are also more severe, especially if you own a home or are in a profession that is disqualified from practicing if a person is bankrupt. An IVA is no better on your credit rating than a bankruptcy so choosing one over the other for credit reasons is not an issue. Instead, look at your life circumstances and figure out which makes the most sense for your particular financial dilemma. Whether you choose a bankruptcy or an IVA, you will need to make a good faith effort to abide by the terms of the agreements or end up in further trouble down the road. If done correctly, either option will help debtors release debts while taking into account their livelihood needs during a period of extreme financial stress. Claire Moylan the author suggest readers visit uSwitch.com for more info about what is bankruptcy.
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