You may be wondering whether an IVA or bankruptcy is best for dealing with your debt. For many people, an IVA is the better solution. But before going ahead, it is sensible to check out how going bankrupt would compare. The information in this article will help you decide.
Included in this article:
- Is an IVA or Bankruptcy better if you are a home owner?
- Does and IVA or Bankruptcy last longer?
- Will you pay more in an IVA or Bankruptcy?
- Which solution is better for your car?
Is an IVA or Bankruptcy better if you are a home owner?
Generally speaking, an IVA is a better option if you’re a home owner. Once in place, the Arrangement protects your property from your creditors.
However, you need to bear in mind that you will have to agree to release equity where possible to increase the amount you pay back towards your debts.
Bankruptcy is not normally a suitable option if you are a home owner with equity. In these circumstances, your property could be at risk. You would have to release your share of any equity for the benefit of your creditors even if it means selling up.
If your property is in negative equity, going bankrupt is an option. Where this is the case, it is likely you will be able to keep your home. However, you must not go bankrupt unless you have taken advice from us first.
Does IVA or bankruptcy last longer?
The Arrangement could last longer if you miss any of your payments. They will be added at the end. In addition an additional 12 months may be added if you are a home owner and are unable to release equity from your property.
Bankruptcy is much shorter. You are actually a bankrupt person for just 12 months.
If you are not required to make any monthly payments, your debt is written off and that is it. If you are required to make monthly payment, then these only last 3 years maximum.
The affect on your credit rating of both solutions is exactly the same. Which ever solution you chose, a record will be added to your file and affect your ability to get credit for 6 years.
Will you pay more in an IVA or Bankruptcy?
There are no up front costs to start an IVA. There is nothing to pay until the Arrangement is accepted and in place. However, overall you will pay more back towards your debt over a longer period of time compared to if you go bankrupt.
Once your IVA is up and running, you will have to start making monthly payments which will last for 5-6 years. If your income improves, your payments will go up. You will also have to pay more if you earn extra overtime or a bonus.
Bankruptcy works differently. You will be required to pay an application fee up front (currently £680). But once you are bankrupt, you will not have to make any make any further monthly payments towards your debt unless you can afford to do so. After 12 months your debt is written off.
If you can afford to make monthly payments these only last 3 years. There is no pressure. If your income falls, the payments stop. The bankruptcy still protects you and your debts are written off.
Although going bankrupt has an up front cost, you are likely to pay much more overall if you do an IVA as long as you aren’t a home owner.
Which solution is better for your car?
You are more likely to be able to keep your car when you do an IVA. The value of the vehicle should not matter unless it is extremely valuable
Where your car is on finance, you will be able to continue with the agreement. You simply add the finance payment to your living expenses budget and keep paying it as normal. The finance company should not have any problem.
If you go bankrupt, your car will be at risk if it is worth more than £2000. Where this is the case, you will have either sell it and get a cheaper one or pay the difference to the Official Receiver.
You will likely be allowed to keep a car on finance as long as the payments are reasonable. However, the finance company themselves may demand the return of the car.
Getting a new car finance agreement during your IVA is possible. However, you will normally need to use a sub prime lender which will be more expensive. As such you may have to replace your current vehicle with a cheaper one.
Need more advice about whether an IVA is the best option for you? Give us a call (0800 011 4712) or complete the form below. Its free and confidential.