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What’s better: An IVA or bankruptcy?

Chris Torney / 21 December 2016 ( 27 February 2020 )

Could an IVA be the answer to your debt woes? Find out what options you have should you need to be declared bankrupt.

A piggy bank on it's back to represent debt

If you are struggling to cope with debt - and can’t reach a settlement with the companies you owe money to - drastic action may be necessary.

For a long time, bankruptcy has been seen as the last resort for people who have unmanageable levels of borrowing. But an alternative, known as an IVA, could prove to be a more suitable option depending on your circumstances.

What is an IVA?

An IVA, or an individual voluntary arrangement, is a form of insolvency that should enable you to keep some of your assets - and shouldn't have the adverse effect on your career that going bankrupt might.

How to clear your debts

Getting the right advice

It goes without saying that filing for bankruptcy or entering into an IVA should not be done lightly. If you are having even minor problems with your debts, it is worth seeking advice from a highly-regarded debt charity such as StepChange (visit or your local Citizens Advice ( centre.

Organisations such as these can help you consider what options are available, and may be able to persuade your creditors to agree a debt repayment plan.

If this kind of solution is not possible, an IVA or bankruptcy may be your only option. But again, getting independent, expert advice is vital.

Bankruptcy vs an IVA

Both bankruptcies and IVAs are formal, legally-binding agreements between you and your creditors. And in both cases, some or all of your debts will be written off. But the differences in how either option works will have a big impact on which one is more appropriate for you.

• If you own your home: If there is any equity in your property, you may be required to sell it and use the profits to pay off your creditors if you go bankrupt. This should not be the case with an IVA, although you may have to remortgage your house at some point to raise extra money.

Even if you are in rented accommodation, there could be repercussions with going bankrupt. Some tenancy agreements say that landlords can ask you to move out if you go bankrupt.

• Other assets: If you own a car, for example, you are more likely to be able to keep it under an IVA.

• Banking: As a bankrupt, you may have to close your bank account and you could find it difficult to open another one.

• Employment: Bankruptcy may have an impact on the kind of work you can do - certain companies and professions bar bankrupts. However, an IVA could also have some impact on your employment, for example if you are an accountant or solicitor.

• Costs and repayments: The cost of setting up an IVA is likely to be much higher than filing for bankruptcy, and an IVA will require you to make monthly repayments to your creditors over a period of several years.

With bankruptcy, your debts are more likely to be written off once you have paid what you can afford out of any property equity, for example. If you are close to retirement, some of your pension savings could be at risk as well.

However, your bankruptcy status is typically written off after a year.

Costly credit card errors


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The opinions expressed are those of the author and are not held by Saga unless specifically stated. The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.

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