The number of personal insolvencies rises every year and has risen by almost one fifth in the past year. Last year there were almost thirty thousand cases of personal insolvency in Wales and England reported in the first quarter of the year.
The number of bankruptcies and IVAs has also risen and seems to be a popular trend. What is the difference between an IVA and a bankruptcy order? We need to understand the difference in order to decide which option will best suit our needs.
People need to seek the advice of a professional before choosing between the two options. Christians Against Poverty and Citizens Advice are two companies that offer free financial advice.
IVAs were introduced to give people an alternative to bankruptcy. Personal loans and credit card balances are two of the things that the IVA handles for you. The IVA is a legal contract between the debtor and creditor, which allows you to settle your debt at a reduced rate and over a certain period of time – normally five years.
As the debtor, you will be required to make monthly payments of around two hundred pounds and once you make your final payment, the remaining debt will be written off. With bankruptcy, your creditors can obtain a bankruptcy order for any debt over seven hundred and fifty pounds.
It is also possible for you to declare yourself bankrupt in a court of law and then your belongings will be sold and the funds will be distributed evenly among the people you owe money too. Certain items such as tools of trade, your car and normal household items cannot be sold, but make sure you know exactly what the rules and regulations are before running into court.
Most of the time the bankruptcy lasts for a period of one year or less and then your record is wiped clean. Bankruptcy could lead to you losing your home, where IVAs will allow you to hold onto your house even if you have to remortgage.
Bankruptcy is also a very public matter and certain people will need to be informed. The details will also be published in the newspaper for all to see. Getting an IVA is a much more private way of dealing with debts that you cannot afford to pay off. Your details will be put on an insolvency website, but will not be published in print.
Filing for bankruptcy can take the pressure off you, but will not allow to you apply for any type of credit until the order is over. The plus side is that you will be able to keep certain household items and some cash to live on, and you can start over once the order is over.