IVA or Bankruptcy? How to Choose the Right Insolvency Option for Your Debt Situation in the UK

If you’re living in the UK and struggling to pay your debts, you may be considering an insolvency option, such as an IVA or bankruptcy. An IVA and bankruptcy are two of the most common ways people in the UK can settle their debts, but they aren’t always easy to understand. If you have personal debt, consider these tips when choosing between an IVA or bankruptcy to help you make the best decision possible for your situation.

What is an IVA?

An Individual Voluntary Arrangement (IVA) is an insolvency solution that allows you to pay back your creditors over time, through a monthly payment plan. Instead of repaying all of your debts at once and declaring bankruptcy, an IVA is more affordable and provides more options when it comes to what debts you repay and how much you pay each month. 

An IVA can be taken out individually or as part of a couple, and it’s applicable if your unsecured debt exceeds £15,000. You’ll need a written agreement from at least three creditors before you apply for an IVA through either a solicitor, debt advisor or debt management company.

What Is The Difference Between An IVA And Bankruptcy

An IVA, also known as an Individual Voluntary Arrangement, is a form of insolvency whereby your debts are paid off at a reduced rate over time. On average, it takes just 12 months before your debt has been cleared. With bankruptcy, you’re legally declared bankrupt by your creditors and unable to access credit until you’ve paid back all of your debts in full. 

While there is no standard bankruptcy period—it could be as short as three years or last for decades—you can work toward getting discharged from bankruptcy status. If you live in the United Kingdom and are struggling with mounting debt, there are two ways to get out of trouble: an Individual Voluntary Arrangement (IVA) or personal bankruptcy.

Benefits Of An IVA Over A Personal Bankruptcy

An IVA can provide more flexibility than a bankruptcy, especially if you have valuable assets that you don’t want to be liquidated. An IVA gives you time to work on your debts by making regular payments, and unlike with bankruptcy, those payments count as taxable income. You also don’t lose any current benefits like health insurance; however, if any retiree benefits are coming down the line, they will be lost through an IVA. 

And while filing for bankruptcy can help eliminate most of your debt—unlike an IVA—the negative mark on your credit report from bankruptcy can stay with you longer than it takes an IVA to pay off.

Things To Consider When Choosing Between An IVA Or A Personal Bankruptcy

An IVA (Individual Voluntary Arrangement) is a formal agreement between you and your creditors designed to repay some of your debts. Personal bankruptcy is a legal procedure, undertaken by an individual, company or corporation to deal with financial difficulties. It is administered by a court-appointed administrator and involves certain statutory procedures. 

A person who has been declared bankrupt: Loses control over most of his assets; cannot sell them without permission from his creditors; cannot borrow any money without consent; loses many rights including the right to vote; may not be able to operate as a director of a company without the written consent of all other directors. An IVA will protect property which would otherwise have been made available for distribution among creditors under a bankruptcy petition.

Tips For Choosing The Best Option In Your Own Financial Situation

When it comes to choosing an insolvency option, an IVA is sometimes a better solution than bankruptcy. Whether that’s right for you depends on many factors and there are pros and cons with each option. It can be overwhelming to know what steps need to be taken next, so here are some key tips on applying for an IVA: 

Determine whether your financial situation requires it—to assess how much you owe, figure out your minimum monthly income necessary. Most schemes ask that you use up all available sources of credit before applying, including overdraft protection. If you have investments you may have to liquidate them too. As such creditors must understand your motivation and commitment by setting aside money every month; do not take any loan advances during the initial stages.

For more information on IVA and additional tips, visit Monemyst

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