Difference Between Bankruptcy and Individual Voluntary Arrangements

If you or someone you care about is facing insolvency, it can be a distressing and confusing time. With ongoing impacts for your personal, financial, and possibly your professional life, it’s worth understanding both the options available and their impact. A good starting point is understanding bankruptcy vs. individual voluntary arrangement (IVA).

Bankruptcy vs Individual Voluntary Arrangements (IVA)

Bankruptcy and IVAs are debt solutions for people who have become insolvent. Both options potentially result in some of the debt being written off. When considering IVA vs. bankruptcy, it’s wise to consider the following:

1. Length of time of the insolvency process. Will IVA or bankruptcy give you a quicker resolution of your debt? Bankruptcy is generally discharged within 12 months, but there may also be ongoing income contribution required for up to three years. IVAs are usually for five years, however may require an extra year if there’s no equity available in your home in the final year of the IVA.
2. Cost of bankruptcy vs. IVA. Whether you choose IVA or bankruptcy there are costs involved. It will be more expensive for an individual voluntary arrangement. Bankruptcy will have lower costs involved but a greater impact on your assets. Bankruptcy will likely involve the complete loss of all assets including your home, car (or other vehicles) and any items of value such as jewellery.
3. Impact on your privacy and reputation. Whether you have an IVA or go bankrupt, these will be recorded on the Individual Insolvency Register. This is a register that can be searched online or in person, but is not indexed to the internet search engines so cannot be found by a general search. The record remains for the life of the process plus three months for an individual voluntary arrangement. Bankruptcy may be discharged much sooner than an IVA, but the record remains for the same period, which can affect credit scores for years beyond the discharge of debts. In addition to the Individual Insolvency Register, unlike individual voluntary arrangements, bankruptcy is also announced in the local paper.
4. Impact on your professional life. A final consideration for IVA vs. bankruptcy is the professional impact with any senior positions and financial roles being in jeopardy while insolvent, and a potentially greater impact due to bankruptcy.

Can I Declare Myself Bankrupt While in an IVA?

To declare yourself bankrupt while in an IVA, you must first notify your insolvency practitioner who will take steps to end your individual voluntary arrangement. Bankruptcy can be declared once they have started the process, even if the termination of the IVA has not been finalised.

Is It Better to Do an IVA or go Bankrupt?

Any insolvency process needs to be entered into with understanding, commitment, and clear judgement. Whether it’s better to choose an IVA or go bankrupt will depend on your unique circumstances and how those will impact your process. The advice of experienced insolvency experts such as Irwin Insolvency can be invaluable in choosing your debt solution. Contact Irwin Insolvency today for peace of mind at this difficult time.