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Can an IVA save me from bankruptcy?

12 October 2009

For many people faced with unmanageable debt problems, it can seem like the only option is bankruptcy - and despite what some see as the `stigma` surrounding bankruptcy, it can be the right option for some people.

However, there may be another option: an IVA (Individual Voluntary Arrangement).

What is an IVA?

An IVA is a legally-binding arrangement with your lenders. It can enable you to avoid bankruptcy by agreeing to repay a percentage of your unsecured debts, and write off the remaining amount.

This will usually take place in the form of regular monthly payments towards your debts, over a period of five years (although timescales can vary depending on what is agreed with your lenders). On successful completion of the terms, the rest of your unsecured debt will be written off and you will be legally debt-free.

Do I qualify for an IVA?

A typical example of someone eligible for an IVA would be:

• £15,000 of debt or more
• At least £200 of disposable income each month
• Cannot realistically repay their debt within a reasonable timeframe

However, the actual criteria are not as clear-cut as that. You will only be eligible for an IVA if you cannot afford to repay your debts in full - and you will have to have a reasonable amount of `spare` monthly income to pay towards your debts - but the actual amount of debt you need to have, and the amount you must be able to pay, could vary according to your circumstances.

Ultimately, it`s down to your lenders to decide whether an IVA is the best way for them to recover money they are owed.

Is an IVA always better than bankruptcy?

Identifying the right debt solution for you will depend on a number of factors. IVAs are often considered a preferable alternative to bankruptcy - but this is not the case for everyone.

One major advantage of an IVA over bankruptcy is that it is very unlikely to lead to the repossession of your assets (such as your home or car), while bankruptcy may be more likely to.

An IVA may still require you to release some of the equity in your home in the final year of the IVA. Of course, if you don`t own your home, this will not be an issue.

Bankruptcy, however, is usually over more quickly than an IVA - usually one year (and you may be required to make payments for three years in total) as opposed to an IVA`s five years.

Both will have a significant impact on your credit rating, and will be visible on your credit history for six years after they start, which will affect your ability to borrow money for that time.

For more advice on whether an IVA or bankruptcy is right for you, click here or call one of our expert debt advisers today on 0800 074 8639.

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