{"id":10388,"date":"2011-08-10T16:56:50","date_gmt":"2011-08-10T15:56:50","guid":{"rendered":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/?p=10388"},"modified":"2019-07-30T09:26:52","modified_gmt":"2019-07-30T08:26:52","slug":"compare-an-iva-with-bankruptcy","status":"publish","type":"post","link":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/compare-an-iva-with-bankruptcy\/","title":{"rendered":"Compare an IVA with Bankruptcy"},"content":{"rendered":"\n

In trying to deal with personal insolvency it is almost inevitable that the debtor will have to consider the two principal solutions available in the U&K, namely entering into an Individual Voluntary Arrangement (IVA) or petitioning for Bankruptcy. <\/p>\n\n\n\n\n\n\n\n

Of course there may in certain circumstances be other more favourable options open to the debtor but they mostly fall into the category of the kindness of strangers or of the generosity of a family member. In reality, since doing nothing is not an option, most people will have to opt for one of the twin pillars of British legislation governing the resolution of personal insolvency. Ultimately, regardless of the quality or quantum of advice sought, it will fall to the insolvent party to decide which route to choose.\u00a0\u00a0\u00a0\u00a0<\/p>\n\n\n\n

\"IVA<\/figure>\n\n\n\n

Before making that fateful decision, the debtor really ought to weigh\n up the pros and cons of each solution from their own personal \nperspective while bearing in mind that other interested parties, \nparticularly creditors, may take a different view of the matter. Let us \nlook at the benefits of an IVA first.<\/p>\n\n\n\n

An IVA provides the insolvent debtor with relief from their debts \nwhile enabling them to repay as much of their debt as possible to their \ncreditors. It avoids the stigma of bankruptcy with its associated \ndisabilities, restrictions and obligations while at the same time it \nenables the debtor to keep better control over assets by being able to \nretain their home and car. He or she can retain their employment or if \ntrading on a self-employed basis, they can often remain in business for \nthe full term of the IVA, leading to higher returns for creditors.<\/p>\n\n\n\n

An IVA is binding on all creditors, including dissenting creditors, \nprovided the IVA proposal is supported by 75% or more of voting \ncreditors, as measured by value. From the point of view of creditors, an\n IVA is likely to yield a higher level of realizations than in \nbankruptcy, and the administrative costs of an IVA are considerably \nlower than those in bankruptcy. These two factors lead to higher returns\n for creditors. The debtor is subject to less publicity in an IVA and \navoids the mandatory publication in newspapers and other periodicals \nwhich is standard practice in bankruptcy. Should the debtor\u2019s \ncircumstances change significantly over the duration of the IVA its \nterms may, with the agreement of creditors, be changed.<\/p>\n\n\n\n

There is minimal and reducing court involvement in an IVA and \ngovernment policy has been to simplify IVA processes for the benefit of \ndebtors and creditors alike. The administration of IVAs is nevertheless \nhighly regulated. The insolvency practitioner\u2019s activities are subject \nto monitoring and auditing by his or her own regulatory body which \nwields considerable powers of sanction for non-compliance. The \ninsolvency industry as a whole is governed by the DTI with oversight \nreview by the OFT on behalf of the consumer.<\/p>\n\n\n\n

Once an IVA is approved, creditor contact with the debtor ceases, \ninterest on all unsecured debts is frozen and penalties are stopped. All\n debts are dealt with and written off in a known and finite time period,\n usually five years. In most IVAs the debtor makes affordable monthly \npayments out of disposable income and may have to contribute a lump sum \nif he or she owns property which is in positive and realisable equity. A\n short term IVA may be approved by creditors where the debtor has little\n or no disposable income but can offer a single one-off lump sum \npayment, with the funds usually coming from the proceeds of the sale of \nassets or through the assistance of a third party such as a family \nmember.<\/p>\n\n\n\n

There are also some disadvantages with an IVA. The insolvent debtor \nhas to pay the set-up, supervision and disbursement costs of the IVA. \nThere is no time related automatic discharge from an IVA similar to what\n is available in bankruptcy. The duration of an IVA during which \npayments must be made is usually five years versus a maximum of three \nyears in bankruptcy. If the IVA is not approved, creditors are free to \npursue other legal actions such as petitioning for the debtor\u2019s \nbankruptcy, obtaining court judgments against the debtor or registering \ncharges on the debtor\u2019s assets. A high level of creditor agreement is \nneeded to approve the IVA. At least 75% by value of the voting creditors\n must accept the debtor\u2019s proposals for the IVA to be approved.<\/p>\n\n\n\n

Creditors also may insist on modifications to a debtor\u2019s IVA proposal\n which usually have the effect of increasing the debtor\u2019s monthly \ncontributions. Creditors often curtail the debtor\u2019s allowances for \nliving expenses to a greater extent than what is allowed in bankruptcy. \nThe increased financial burden on the debtor may cause the IVA to fail \nduring its term of supervision if the debtor is unable to sustain the \nenhanced level of contributions demanded. For the last number of years \ncreditors have used the services of voting agencies to act aggressively \non their behalf at the meetings of creditors where IVAs are accepted or \nrejected. These agencies seek to maximize the dividend yield from the \nIVA on behalf of creditors. They do this by seeking enhanced \ncontributions from the debtor and by reducing the fees of the insolvency\n practitioner (IP). This two-pronged approach increases the probability \nthat the IVA may fail in supervision, if the debtor is unable to sustain\n payments, and makes the IVA less commercially viable for the IP. Using \nsuch voting agencies adds costs to the IVA process but creditors may \nfeel that efficiencies achieved and increased debtor contributions \nresult in higher net dividend yields.<\/p>\n\n\n\n

The debtor is prohibited from engaging in any further borrowing \nduring the life of the IVA, except with the express permission of the \nsupervisor and creditors. The debtor will suffer the consequences of a \npoor credit rating even after completion of the term of the IVA with his\n or her name continuing to appear on credit files, as maintained by the \ncredit reference agencies, for six years from the commencement of the \nIVA or from the date when the default was first registered.<\/p>\n\n\n\n

Let us look next at the benefits of bankruptcy. Commencing the \nprocess is quite easy since insolvent debtors may petition for their own\n bankruptcy. Creditors may also petition for a debtor\u2019s bankruptcy. The \ncost of petitioning is low – approximately \u00a3700 at present. No other \nlegal costs are incurred. Citizen Advice Bureau officers and Court \nofficers can assist the debtor in completing relatively simple forms and\n submitting them. The debtor is automatically discharged from bankruptcy\n after one year, provided it is a first time bankruptcy. Most, if not \nall, debts will not survive the bankruptcy. All further contact between \nthe bankrupt debtor and creditors ceases with the debtor enjoying the \nconsequent reduced stress and worry.<\/p>\n\n\n\n

The duration in which the debtor has to make contributions is \nlimited. Income Payments Orders (IPOs) and Income Payments Agreements \n(IPAs) are limited to three years and in many cases no IPO or IPA is \napplied where the debtor\u2019s disposable income is deemed to be too low. \nThe debtor enjoys more generous I&E allowances than are allowed in \nan IVA and thus is left with more income on which to live, although this\n advantage has diminished somewhat in recent years.<\/p>\n\n\n\n

There are also considerable disadvantages to bankruptcy. Historically\n the major disadvantage for most people is the stigma of bankruptcy with\n its associated disabilities, obligations and restrictions which make it\n difficult and sometimes impossible for the debtor to trade (commence or\n continue) or to obtain or retain employment. Bankruptcy can be a career\n breaker with many professions and trades imposing sanctions on bankrupt\n members of their organizations, including the ultimate sanction of \nexpulsion. The bankrupt debtor also faces potential liability for any \nbankrupt offences he or she may have committed. The trustee has powers \nto challenge the validity of any prior transactions if they appear to be\n preferential or at an under-value. Some bankruptcy restrictions may be \napplied for between two and fifteen years.<\/p>\n\n\n\n

In bankruptcy, the debtor loses control of his or her assets, and is \nlikely to lose their home or their share of it. The debtor\u2019s poor credit\n rating continues even after discharge from bankruptcy and their name \nwill continue to appear on credit files which are maintained by the \ncredit reference agencies for six years from the commencement of \nbankruptcy. The debtor cannot engage in any further borrowing before \ndischarge without the express permission of the trustee. The biggest \ndownside for creditors is that the higher costs of bankruptcy result in \nlower returns and in many bankruptcies, creditors receive nothing.<\/p>\n\n\n\n

In reaching a decision, the insolvent debtor can tick the boxes that \napply to him or her for both processes. If making the decision is still \ntoo difficult, it makes sense to consult with an insolvency professional\n who can clarify any remaining doubts, taking into account the \nindividual circumstances of the debtor and particularly what the debtor \nwants to achieve in terms of paying back as much as possible of the \ndebts, avoiding stigma and rebuilding credit worthiness.   <\/p>\n","protected":false},"excerpt":{"rendered":"

In trying to deal with personal insolvency it is almost inevitable that you will have to consider an IVA or Bankruptcy.<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_seopress_robots_primary_cat":"none","_seopress_titles_title":"","_seopress_titles_desc":"","_seopress_robots_index":"","footnotes":""},"categories":[2,7],"tags":[],"class_list":["post-10388","post","type-post","status-publish","format-standard","hentry","category-bankruptcy-articles","category-iva-articles"],"_links":{"self":[{"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/posts\/10388","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/comments?post=10388"}],"version-history":[{"count":2,"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/posts\/10388\/revisions"}],"predecessor-version":[{"id":10407,"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/posts\/10388\/revisions\/10407"}],"wp:attachment":[{"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/media?parent=10388"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/categories?post=10388"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/tags?post=10388"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}