Individual Voluntary Arrangement Vs. Bankruptcy: Check the Pros, Cons and More

Emotional Stress. Financial Crisis

When you have many debts and are looking for formal insolvency, there are two different options – individual voluntary arrangement (IVA) and bankruptcy. Both may similar in nature and are legally-binding, but there are considerable differences, as well. Here’s a quick take on the differences, pros and cons.

Effects on your home, career and car

Individual voluntary arrangement is often viewed as an alternative to bankruptcy, but what may work for you may not work for someone else. Bankruptcy does affect your home, especially when you have equity tied up in your house. In such cases, you will have to sell your home to repay the debts. In IVA procedure, you may have to re-mortgage the house if that’s feasible and affordable, but won’t be typically forced to sell. If re-mortgaging doesn’t seem affordable, additional 12 months will be added to the procedure.

In case of your career, bankruptcy will affect your career more than IVA. This is more of a concern for those involved in real estate, financial sectors and accounting. If you are acting as a director of the company, you won’t be allowed to act like one for a limited company – something that’s not true with bankruptcy.

As for your car, you may be allowed to keep it during IVA, but in bankruptcy, it can be sold to repay the debts, provided it has decent value.

Pros and cons of IVA

  • You get better protection for your assets in IVA
  • It may not affect your career as adversely as bankruptcy
  • If you own a business, this may work better than bankruptcy
  • It also takes more time, and you can work on your credit report

On the flip side

  • IVA lasts a lot longer, which means one must endure it
  • Like bankruptcy, your name will be in the insolvency register
  • It will affect your credit rating
  • IVA can be costly.

You can find more details here on individual voluntary arrangement.

Pros and cons of bankruptcy

It’s hard to consider bankruptcy positively, but one may have a reason to choose bankruptcy, like

  • Bankruptcy is the only choice you have
  • You don’t have a lot of assets
  • Can be completed in a shorter time
  • Creditors cannot ask for more than what’s ordered by the court

On the flip side

  • Bankruptcy will affect those more working in financial, accounting and real estate related sectors
  • Your debt will be public, and name will appear on insolvency register.
  • You may have to sell your home and other assets.

To know how bankruptcy will affect your career and assets, check here for details on the procedure.

Take professional advice on whether bankruptcy or IVA may work better for you.