IVA Vs Bankruptcy
Bankruptcy is the most serious debt solution.
Through an IVA you will probably be able to keep your property whereas through bankruptcy you will probably lose it. You may be expected to release equity in your property through an IVA.
Credit reference agencies don't make much of a distinction between an IVA and bankruptcy. Both remain on your credit report for a period of six years. Mortgage lenders will most likely ask you if you have ever been declared bankrupt before. Hence, bankruptcy may affect your credit worthiness forever.
Bankruptcy may mean you have to change profession. This is certainly not the case with an IVA.
Although you will be discharged from bankruptcy after a maximum of 12 months, you may be expected to contribute to your creditors for a period of 3 years. Through an IVA you will be expected to contribute to your creditors for up to 5 years. You will, however, avoid bankruptcy and losing your property.
IVA Vs Debt Consolidation
Through debt consolidation you can combine all your individual loans into one, using a secured or unsecured loan. The purpose is to achieve a lower monthly repayment or reduce the total amount that you have to repay (due to lower interest).
Note: Through loan consolidation, you cannot reduce the amount you borrowed. This still has to be repaid. It is only the amount of interest and monthly repayments that can be reduced by restructuring your debt. It is only through an IVA that you can repay just part of what you borrowed.
There are three ways to reduce your monthly repayments:
- Overall cheaper interest
- Longer term
- Both
Debt consolidation is a commonly seen as a less serious debt solution. In fact, this is far from the truth and the consequences of debt consolidation can be serious.
For instance, if you consolidate your debts into a mortgage or other type of secured loan then your house could be re-possessed if you fail to meet the repayments. Hence, you may lose your home.
When you look at a consolidation loan Vs IVA the following comparisons can be made:
| IVA | Debt Consolidation | |
|---|---|---|
| Reduce the capital you owe | Yes | No |
| Reduce monthly repayments | Yes | Yes |
| Debt free after 5 years | Yes | Depends on Term |
| One monthly repayment | Yes | Yes |
Generally speaking, a consolidation loan will prove more expensive for people with poor creditworthiness.
IVA Vs Debt Management Plans
A debt management plan is an informal arrangement between your creditors and yourself. A debt management company will usually set this up for you. The idea is to negotiate more affordable monthly repayments and hopefully get the lender(s) to agree frozen interest and no charges during the plan.
Debt management plans are not legally binding and the creditor will probably want to receive the full outstanding amount. If they do agree to receive a percentage of the amount outstanding then they can still change their mind at any time.
An IVA is legally binding, which means that once in place both the creditors and yourself have to stick to the terms.
IVA Vs Administration Order
An administration order is suitable if you have debts under £5000, whereas, an IVA generally applies if you have debts above this.
It is a court based procedure that can be used if one or more of your creditors have obtained a county court judgement against you. You must have a disposable income as the administration order will require you to make weekly or monthly payments to the court to repay your debt.
