Debt Solution – Bankruptcy Or IVA?

A debt solution is a legal arrangement that helps you to repay your debts. The IVA is a type of debt solution that is available to residents of England, Wales and Northern Ireland. It is a formal and legally binding debt solution that will sit on your credit file for six years.

Debt solutions in the UK include a number of different options, such as bankruptcy and IVA. It is important to understand the difference between these two types of debts solution so that you can decide which one is best for you.

An IVA is a debt solution that aims to help you repay your debts over a set period of time, usually five years. You are supervised by an Insolvency Practitioner (IP) who will take your debts into account and create a repayment plan that is affordable for you to meet.

The IVA process starts with your IP contacting all your creditors to discuss your financial situation and find out what they think will be an affordable repayment plan for you. They then put together a proposal for you which is submitted to your creditors.

They will also arrange a meeting with your creditors. At this meeting your creditors are allowed to ask for changes to the proposal. They will often ask for things like a higher monthly payment, restrictions on obtaining credit or a maximum return on the funds they are owed.

If they agree to the proposal, it will then go to a supervisor who will make sure that all your payments are being made as agreed and that your plan is being followed. Once the supervisor has signed off your plan, your IVA is approved and you will start paying back your debts according to the plan.

An IP will then review your agreement every year to ensure that you are still able to meet the payments as agreed, and check that your circumstances have not changed. If you have changed your circumstances and can no longer make the payments, your IP will look at other options such as a ‘modified’ IVA.

A ‘modified’ IVA will usually cost more than a full IVA, and can be more difficult to get accepted. It can also be more expensive to set up, and your IP may need to take further action against you such as a bankruptcy application or taking legal action to recover the costs they have paid to your creditors.

You should be able to include most unsecured debts in an IVA, including utility and tax arrears. Secured loans, such as mortgages, can be included but you will need to speak to your creditors and see if they are willing to include them.

It is important to check with a debt adviser before signing up for an IVA if you are self-employed or have any assets that could be used to repay your debts, such as your car. Often it is possible to exclude these creditors and only include those that you need to pay off.