Should you go bankrupt rather than do an IVA

Should you go bankrupt rather than do an IVA

Most people’s initial thoughts about bankruptcy are that it should be avoided. But this is wrong. For many, to go bankrupt can be a better debt solution than an IVA.

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Is bankruptcy as bad as it sounds?

Your first impression of going bankrupt will probably be that it is a bad idea. Something to be avoided and only considered as an absolute last resort.

However, in some situations, bankruptcy is actually a better solution than an IVA.

When you go bankrupt, all your unsecured debts are written off. Unlike an IVA, this even includes debts you have forgotten about. If they come up later they are still included.

Your credit rating is effected in exactly the same way as if you start an IVA. A record will be included on your credit file for 6 years.

Before making the decision to start an IVA, you should first look at the option of bankruptcy to check whether it could be a better option for you.

When should you go bankrupt?

Bankruptcy may be an ideal solution if you have no surplus income – in other words you can’t afford any monthly payment towards your debts. Monthly debt payments are not required if you go bankrupt unless you can afford to make them.

If you do have surplus income, you will still have to make a monthly payments. However these will last for a maximum of 3 years compared to 5-6 in an IVA.

Where your income falls after you go bankrupt, any payments you have been asked to make will be reduced or stopped altogether. You are still bankrupt and your debt is still written off.

People who live in rented accommodation may also find that going it is a sensible option. Rented property is not at risk and it is very unlikely your landlord will find out.

If you are on a low income and have no assets, you could also consider a Debt Relief Order as a cheaper alternative to bankruptcy.

Who should avoid bankruptcy and consider an IVA?

Bankruptcy is not always a good option. In particular it may have to be avoided if you are a homeowner with equity as your property could be at risk.

If you are a home owner with equity, an IVA could well be a better debt solution for you. You should speak to us about this option.

Bankruptcy may also have to be avoided if you have a valuable asset which you don’t want t lose. Most commonly a car or other vehicle worth more than £1000 will be at risk. This will not be the case if you do an IVA.

Any windfalls received while you are bankrupt (such as as inheritance) will have to be handed to the official receiver. So if you think you might get a lump sum in the next 12 months, it may not be suitable for you. That said, bear in mind that the same rule applies if you are in an IVA and lasts for 5-6 years.

Want to speak to someone about whether bankruptcy could be a better option for you that an IVA? Give us a call on 0800 011 4712 or complete the form below and we’ll call you.

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6 thoughts on “Should you go bankrupt rather than do an IVA

    Steve says:

    Just wondered what living expenses you can claim when applying for an IVA – I have pets can I take their food and put aside vets fees into account

      Hi Steve

      You can include a budget for pet food and vets bills / pet insurance in your IVA living expenses budget. For more more details about all the things you can include have a look at our IVA living expenses guide.

    Sam says:

    Hi. Will an iva prevent me from setting up a business?

      Hi Sam

      If you start an IVA, I confirm this will not prevent you from starting a business during the Arrangement or in the future. You can be a sole trader or even start a limited company if you wish. There are no restrictions.

    CarolB says:

    Hi, i have recently applied for an iva. thing is i have been bankrupt 10 years ago. Do the company need to know this.

      Hi Carol

      In theory, the fact you where bankrupt 10 years ago should not have any impact on whether or not you can now do an IVA. Because of the time gap, the two things are unrelated. I have worked with many people who have been bankrupt in the past and then got into debt again and used an IVA to resolve the problem.

      That said, I do think it would be a good idea to mention it to your IVA company so they know. I am sure there will be no issue but it is best to tell them.

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