IVA's (Individual Voluntary Arrangements) and Bankruptcy are legal processes for people in serious debt, who cannot afford to clear the debt.
Both are serious legal proceedings that will have a strong impact on your financial future, including your ability to get credit in the future. Think carefully before entering into either, and seek professional advice, perhaps from the Citizens Advice Bureau.
IVA's
An IVA is a formal agreement between you and your creditors. It allows you to come to an arrangement with the people you owe money to to make reduced payments towards your debt. This pays off a percentage of your debt, then generally after 5 years the debt is classed a settled. As a legal agreement, the arrangement must be negotiated, written up and checked regularly by an independent solicitor or accountant called an Insolvency Practitioner. Not all of your creditors have to agree to an IVA, as long as the creditors to whom you owe 75% (three quarters) of your debt agree.
Your monthly payments will be worked out based on your affordable disposable income. Once your final payment is made, any outstanding debt is legally written off. The arrangement can write off up to 65% of your debt (subject to your circumstances). Interest and debt charges are frozen ,and creditors will be prohibited from demanding additional payments.
During the period of your arrangement your financial situation will be reviewed regularly to see if there has been any change in your circumstances, and you are legally obliged to provide details of such changes.
An IVA can be expensive to set up, and you may have to pay an upfront fee. If you enter into an IVA and then fail to keep to the set payments, you can be made bankrupt.
If you enter into an IVA with your creditors and you have an endowment policy linked to your mortgage then you may well be expected to cash it in, and pay the proceeds into the arrangement so that it can be paid to creditors. If your property has a reasonable amount of equity then some of it will usually need to be released during the arrangement so it can be paid to creditors. This can be a deciding factor in whether an IVA is agreed by creditors, and can help you to keep your home.
For more detailed information about IVA's, click here.
Bankruptcy
Bankruptcy is a serious legal process for people that cannot pay their debts.
Going bankrupt places retrictions on your financial life, but does free you from your debts and ensure that any assets are shared out fairly among your creditors.
If you decide to go bankrupt you will be subject to bankruptcy restrictions and will also be investigated by the Official Receiver. You have to comply with the duties and obligations placed upon you under insolvency law, this is a serious legal procedure and failure to comply with orders and obligations will mean that you will be in contempt of court and liable to be punished accordingly.
- The Official Receiver is appointed to protect your assets from the date of the order and to investigate your affairs and conduct leading up to the bankruptcy.
- It is essential that you get legal advice before attempting to go bankrupt, even if you feel it is your only option. The Citizens Advice Bureau will be able to offer you advice about the procedure of going bankrupt.
- Under insolvency law it is not just you who may be affected if you decide to go bankrupt. If reason exists they can be brought into the proceedings and may also be affected financially.
- You can file for bankruptcy at your local County Court. To file for bankruptcy you must be able to show that you are unable to pay your debts.
- Filing for bankruptcy can be expensive, and usually costs over £100 in fees, although some of this may be means tested.
- Bankruptcy cannot be kept private and if you go bankrupt details may be published in the legal section of your local newspaper, as well as on the internet.
- Bankruptcy has a serious long-term affect on your ability to get bank accounts, credit and other financial arrangements.
For more information about bankruptcy, please click here.
