IVA vs Bankruptcy - Complete Comparison Guide

Choosing between an Individual Voluntary Arrangement (IVA) and bankruptcy is one of the most important financial decisions you can make. Both can help resolve overwhelming debt, but they have very different processes, costs, and long-term consequences.

Quick Comparison: IVA vs Bankruptcy

What is an IVA?

An Individual Voluntary Arrangement is a legally binding agreement between you and your creditors to pay back a portion of your debts over a fixed period (usually 5 years).

Key IVA Features:

• Voluntary agreement - creditors must agree (75% by value)
• Fixed monthly payments based on affordability
• Debt write-off at completion (typically 30-70%)
• Keep your home in most cases
• Professional supervision by licensed Insolvency Practitioner

What is Bankruptcy?

Bankruptcy is a legal process where the court declares you unable to pay your debts. Your assets may be sold to pay creditors, and remaining debts are usually written off after 12 months.

Key Bankruptcy Features:

• Court process - automatic if you meet criteria
• Quick discharge - usually 12 months
• Asset seizure - valuable items may be sold
• Complete debt write-off for most unsecured debts
• Public record - appears in London Gazette

Detailed Comparison: IVA vs Bankruptcy

1. Eligibility Requirements

IVA Eligibility:

• Minimum £6,000 debt to 2+ creditors
• Regular income of some kind
• Affordability of at least £80/month
• England, Wales, or Northern Ireland resident
• Insolvent - unable to pay debts as they fall due

Bankruptcy Eligibility:

• Any debt level (even under £5,000)
• Unable to pay debts - £680+ court fee required
• England or Wales resident
• No minimum income requirement
• Can be forced by creditors owed £5,000+

2. Your Home and Property

IVA and Your Home:

• Usually keep your home if mortgage payments affordable
• Equity release may be required in year 5 (typically 85% of equity)
• Remortgaging allowed with IP consent
• Downsizing only if financially beneficial

Bankruptcy and Your Home:

• Home may be sold if significant equity exists
• Trustee controls decision about property sale
• Family protection - court may delay sale if children involved
• Cheap or negative equity - usually no action taken

3. Impact on Employment

IVA Employment Impact:

• Most jobs unaffected - private arrangement
• Financial services - may need to inform employer
• Professional bodies - check specific requirements
• Directors - can continue in role

Bankruptcy Employment Impact:

• Restricted professions: Solicitors, accountants, company directors
• Financial services - likely to lose FCA authorization
• Public sector - some roles may be affected
• Self-employed - business assets may be seized

4. Privacy and Public Records

IVA Privacy:

• Not published in newspapers or London Gazette
• Individual Insolvency Register - publicly searchable
• Workplace confidentiality - generally can remain private
• Credit file only - visible to lenders checking credit

Bankruptcy Privacy:

• Published in London Gazette - public newspaper
• Individual Insolvency Register - publicly searchable
• Local newspaper - may be published locally
• Less privacy - more publicly visible

5. Assets and Possessions

What You Keep in an IVA:

• Essential household items - furniture, appliances
• Car - if reasonable value and needed for work
• Tools of trade - equipment needed for employment
• Personal belongings - clothes, jewelry (reasonable value)
• Pension - usually protected

What You Keep in Bankruptcy:

• Basic household items - essential furniture only
• Cheap car - usually up to £1,000-£2,500 value
• Tools of trade - up to reasonable value
• Basic personal items - excluding luxury goods
• Pension - usually protected

6. Duration and Timeline

IVA Timeline:

• Setup period: 2-8 weeks typically
• Payment period: 60 months (5 years) usually
• Annual reviews: IP monitors progress
• Completion: Certificate issued after final payment
• Credit file: Remains for 6 years from start date

Bankruptcy Timeline:

• Application: Same day if online, weeks if court application
• Automatic discharge: 12 months typically
• Asset investigation: Can continue after discharge
• Income payments: Up to 3 years if earning enough
• Credit file: Remains for 6 years from bankruptcy date

7. Costs and Fees

IVA Costs:

• Court fee: £90 (if required)
• IP setup fees: Deducted from payments (typically £3,000-£5,000 total)
• Monthly supervision: Included in IP fees
• No upfront costs - fees taken from payments

Bankruptcy Costs:

• Court fee: £680 mandatory
• Official Receiver fee: Included in court fee
• Trustee fees: If appointed (from any assets)
• Must pay upfront - required before application

8. Credit Rating Impact

Both IVA and bankruptcy have similar credit impacts:

• 6 years on credit file from start/bankruptcy date
• Difficulty obtaining credit during this period
• Gradual improvement as time passes
• Different lender policies - some prefer one over other

Which Debts Are Covered?

Both IVA and Bankruptcy Cover:

• Credit cards and store cards
• Personal loans and overdrafts
• Payday loans and hire purchase
• Council tax arrears
• Utility bill arrears
• HMRC debts (tax, VAT, PAYE)

Neither Covers:

• Student loans
• Court fines and confiscation orders
• Child maintenance arrears
• Secured debts (if keeping the asset)
• Recent gambling debts (bankruptcy)
• Some pension overpayments

When to Choose an IVA

IVA is Better If:

• You want to keep your home and have equity
• Professional career would be damaged by bankruptcy
• Regular income allows affordable monthly payments
• Privacy important - less public than bankruptcy
• Family considerations - less disruptive process
• Business ownership - can continue trading

IVA Example Scenario:

Sarah has £35,000 debt, owns a home worth £200,000 with £150,000 mortgage. She earns £30,000/year and can afford £200/month. An IVA lets her keep the home, pay £200/month for 5 years, and write off remaining debt.

When to Choose Bankruptcy

Bankruptcy is Better If:

• No assets to lose - renting, no valuable possessions
• Very low income - can’t afford IVA payments
• Want quick resolution - discharged in 12 months
• Overwhelming debt - need complete fresh start
• No regular income - unemployed or benefits only
• Don’t mind publicity - comfortable with public record

Bankruptcy Example Scenario:

Mark has £45,000 debt, rents his home, has no assets, and is unemployed. He can’t afford IVA payments and needs a complete fresh start. Bankruptcy writes off all debt after 12 months with minimal ongoing obligations.

Alternatives to Consider

Debt Management Plan (DMP)

• Informal arrangement with creditors
• No legal protection but more flexible
• Suitable for temporary difficulties
• No court involvement or public records

Debt Relief Order (DRO)

• Low-cost bankruptcy alternative - £90 fee
• Strict eligibility criteria - assets under £2,000, income under £50/month
• 12-month process with debt write-off
• Perfect for very low income, minimal assets

Administration Order

• Court-based payment plan for county court judgments
• Single monthly payment to court
• Debt under £5,000 typically
• Less severe than bankruptcy or IVA

Making Your Decision: Key Questions

Ask Yourself:

1. Do I have assets worth protecting? (especially your home)
2. Can I afford regular monthly payments?
3. How important is privacy to me?
4. Will my career be affected?
5. Do I need a quick resolution or can I wait?
6. How much debt write-off do I need?

Professional Advice Essential

• Free debt advice available from multiple sources
• Licensed professionals can assess your situation
• Compare all options before making decision
• Consider long-term consequences not just immediate relief

FAQ: IVA vs Bankruptcy

Q: Which option writes off more debt? A: Bankruptcy typically writes off 100% of qualifying debts, while IVAs write off 30-70% depending on your circumstances.

Q: Can I change from an IVA to bankruptcy? A: Yes, if your IVA fails or you can’t maintain payments, bankruptcy may become an option.

Q: Which is worse for my credit rating? A: Both impact credit similarly - 6 years on your file. Some lenders prefer one over the other, but neither is definitively “worse.”

Q: Can I choose which debts to include? A: No, both processes require you to include all qualifying unsecured debts. You can’t pick and choose.

Q: Which is faster to complete? A: Bankruptcy discharge is faster (12 months vs 5 years), but asset investigations can continue longer.

Getting Professional Help

Free Debt Advice Sources:

• StepChange Debt Charity - 0800 138 1111
• National Debtline - 0808 808 4000
• Money Advice Service - 0800 138 7777
• Citizens Advice - Local offices nationwide

What to Expect:

• Complete financial assessment of your situation
• Explanation of all options available to you
• Recommendation based on your circumstances
• Ongoing support throughout the process

Conclusion: IVA vs Bankruptcy

There’s no universally “better” option - the right choice depends entirely on your specific circumstances:

• Choose an IVA if you have assets to protect, regular income, and want privacy
• Choose bankruptcy if you have no assets, very low income, and need quick resolution
• Consider alternatives like DMP or DRO if they better suit your situation

The most important step is getting professional advice to understand how each option would specifically affect you.

Ready to Make Your Decision?

Don’t face debt problems alone. Get expert guidance to choose the right solution for your situation.

• Get Free Debt Advice from qualified professionals
• Use Our IVA Calculator to check eligibility
• Compare All Debt Solutions side by side
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Related Guides:

• What Happens After an IVA - Life post-IVA
• IVA Early Settlement - Pay off your IVA sooner
• Can I Get a Mortgage After IVA - Post-IVA homeownership