Bankruptcy versus IVA ~ Debt Managements and Consolidation

Neil Morrissey recently opted for an individual voluntary agreement rather than bankruptcy when his investments in a property company resulted in him falling into financial difficulties, while the Eastenders actor Joe Swash opted for bankruptcy rather than an IVA when he also found himself with debt problems. So, which is the best option if you find yourself with money troubles?

Credit-rating agencies such as Experian do not really differentiate between bankruptcies and IVAs, but there are still some crucial differences to be considered when weighing up the two options.Bankruptcy is discharged after a year but stays on one’s credit file for five years, which could result in difficulties getting credit and contracts. IVAs also affect one’s credit rating and may also lead to difficulties getting jobs in financially sensitive positions.If you have no assets and no income then bankruptcy is probably the best option. However, depending on your profession, such a declaration could threaten your career: solicitors and accountants would be fired, so for them an IVA would be the better option. Also, bankruptcy will be in the public domain. It could be printed in newspapers and you won’t be able to control who finds out about it, whereas an IVA is a much more private affair, which - while it might be published on the Insolvency Service’s website - won’t be printed in papers.But then, bankruptcy offers an escape from creditors that an IVA cannot match. You can keep your house and enough to live on and in many cases the rest of your debts may be written off after one year, as long as you haven’t concealed your ability to repay creditors during that period. However, there are some debts - like student loans and court fines – which will never be written off. With an IVA however, you may well have to pay an upfront fee and you can only take out an IVA if you have the ability to pay back your creditors.The key is to get advice early. Both options should be seen as a last resort. Talk to a specialised debt advisor.
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