The difference between an IVA and bankruptcy

Although an IVA has very serious consequences, bankruptcy is the final stage. There are actually a few differences between an IVA and bankruptcy – here are some of the most important differences…

Duration

Bankruptcy only lasts for 12 months but it stays on your credit report for 6 years. An IVA also stays on your credit report for 6 years.  There is a chance you have to pay into bankruptcy for a further three years.

Surplus income

For an IVA you will need a regular income and a decent surplus (or disposable) income. This will be used to calculate your repayments. If you’re filing for bankruptcy then you don’t need a surplus income – you can even apply for bankruptcy if you’re on benefits.

Fees

Even though both IVAs and bankruptcy come with their fair share of fees, bankruptcy tends to incur more fees. This includes a deposit before you go bankrupt and court fees, whereas if you have an IVA your creditors will agree on a percentage of your monthly repayments that goes towards the Nominee and Supervisory fees (the charge to the Insolvency Practitioner).

Remortgaging home

If you go bankrupt and you have equity in your house, there’s a high chance that the Official Receiver, the person in charge of the bankruptcy, will make you sell your home – but this is only applicable if you have any equity in your home. However, if you’re on an IVA and you own your home then the chances of being forced to sell your home are very low. But there’s a chance you’ll be asked to remortgage six months before the end of your IVA terms. And even then, you’ll only have to remortgage if you can afford it, but you will have to extend your IVA by 12 months.

Caree

An IVA really only affects your career if your contract of employment says you can’t continue with your role. It will also be harder, but not impossible, to join the police, armed forces or any professions dealing with finances, law and property. If you’re bankrupt it’s actually illegal for you to have certain jobs such as a government councillor or a company director – which is bad news for those of you who are self-employed.

Publicity

Bankruptcy is slightly more public than an IVA – it will appear in news outlets and the Insolvency Register, whereas an IVA means you appear on just the Insolvency Register. If you want a little more privacy then an IVA may be the better option.

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