IVA vs. Bankruptcy

Unsecured debt problems can be sorted out in a number of ways. But many a times, we need to choose either of the two options, i.e., IVA or Bankruptcy.

So what factors to consider while making a decision between the two? Which one is better for the debtor? Well, it depends on a number of circumstances. Following is a list of some of them:

1. Timescale
Generally an IVA lasts for 60 months whereas Bankruptcy is for 36 months only. According to a bankruptcy restriction order (BRO) in UK, a debtor pays a proportion of his disposable income to the official assignee for a period of 3 years, if he is declared bankrupt in accordance with the orders from high court judge.

2. Post lost/resumed
Bankruptcy has a far more reaching effect on the number of positions of responsibility it can affect.
Bankruptcy can lead to loss of position, both in private as well as public sector. But it is not so in the case of IVAs. IVAs doesn’t affect the debtors position at all. It is more lenient in case of IVAs.

3. Assets lost / kept
The Official Assignee owns an interest in the property being kept for bankruptcy. The Official Receiver can even sell the property within a time period of 3 years of bankruptcy and can resume the proceeds of the sale after making payment to the creditors out of it, only if the property has equity that has been realized.
But it’s not the same in case of IVA. Nobody has the right to sell off the owned property going into an IVA. An interest to the creditors must be given.

4. Public/Discreet matter
An IVA is not a public solution; rather it is more personal and a discreet matter. It is solved personally. In contrast to this, bankruptcy matters are declared publicly and are even sometimes published in local newspapers. Therefore one prefers to go with an IVA.

5. Credit availability
In UK, whether you go for bankruptcy or for an IVA, both limit the credit availability for you. But if you prefer to go with bankruptcy, you are legally binded to inform your potential lenders if you are applying for more than £500 of credit. Contrary to this, IVAs don’t require creditors to get informed.

6. Hire Purchase agreements
In most of the HP agreements, a clause of the contract contains that if you are bankrupt, you need to return the vehicle to the hire purchaser. But this is not true for IVAs case.

7. Return on bankruptcy/IVA
Most of the creditors will prefer to go with an IVA than to go bankrupt since there is a chance to get somewhat better, high interest of return, irrespective of the fact that both allow a fresh start for the debtor.

8. Personal Disposable Income (PDI)
An IVA will need that you must be in a position to make reasonable monthly payments to your creditors, i.e. you should have a stable source of income. Otherwise there is no other option except that you go bankrupt.

Your first IVA meeting

The first meeting with the creditors sounds fearsome to some IVA applicants. The reason being, your financial affairs are being scrutinized in front of your creditors and you have to give explanation of each and every expense that you incurred. Earlier, a few of IVAs were there when it first started some years back, so this concept came into picture.

In the last few years, IVAs have become a common mode for sorting your debt problems. Debtors need not attend the meeting. This meeting is arranged with the sole aim of having a face-to-face interface between the applicant and the creditors.

But this doesn’t mean that the debtors are relieved easily from creditor’s interrogation. The creditors can question IPs directly if they have verified the debtor’s expenditures properly. Whether it relates to their monthly bills or anything else. IPs have to do a detailed verification of all the expenditures incurred by the debtors.s

The creditors make a record of the received IVA proposal with them and pass the same to a specialized IVA department who then votes on their behalf. The creditors are to poll for their vote usually one day before the meeting. The rules for voting are then mailed to the Insolvency Practitioner. Creditors can then vote according to the size of their unsecured debts. A minimum of 75% of total votes casted have to be achieved in order to get your IVA approved. At least one creditor should vote in its favor and the actual amount of votes casted at or before the meeting are taken into account for majority basis. The absentees can vote only if an adjournment of meeting is allowed.

It’s not compulsory for the creditors to accept the proposal. They may accept it as it is or reject it or can imply certain conditions such as an increase in the rate of interest or specify a minimum amount of dividend for them.

If the debtor absents himself at the meeting, any modifications in the proposal are forwarded to him by the IP. Now it’s the choice of the debtor to either accept the modifications offered by creditors or reject it or to have a compromise with them. If it results to any compromise, your IP informs the creditor and adjourns the meeting. The original vote of the creditor can be counted or he may choose to vote again at such adjourned meeting. The meeting can be adjourned for a maximum of 14 days from the original date and in order to give rise to an IVA, the debtor must accept sufficient creditors' votes by then.

Conclusion:
IVA helps you to get rid of your worries and your debts. To enable an IVA to go ahead, the whole process is now simplified. So, don’t be worried about your first meeting with creditors, just go for it.

Eligibility Criteria For an IVA

IVA (Individual Voluntary Arrangement) was introduced in 1986 as an alternative to bankruptcy, supporting the interests of both the borrower and the creditor. An IVA may include any type of unsecured debt like credit cards, personal loans, overdrafts etc. The main benefit of IVA is that the interest on the loan is frozen since you only need to pay a certain percentage of your debts and not the whole amount borrowed.

Your IVA eligibility depends on your personal as well as your financial circumstances. Some simple criteria are given below to help you get an idea as to which alternative to go with:

1. You have to be a resident of England, Wales or Northern Ireland. IVAs are not available to people not residing in UK.
2. Your personal debts must be above £15,000 and is not meant for smaller amount of debts.
3. Your IVA must spread among 3 or more different creditors.
4. You need to be insolvent and in some cases, proof of your financial documents is required. You cannot have any material assets to pay off your debts.
5. You must be in a position to make reasonable monthly payments to your creditors. Usually it is a minimum of £250 per month.

Thus an IVA acts as a legal binding contract between you and your creditors thereby saving the interests of both the parties. It is suitable for people with poor credit history and who are unable to pay off their debts but have at least a stable source of income so as to make considerable monthly payments.

IVA - best way to save your self from bankruptcy

Over 21 million people in Britain do not know exactly what an IVA - or Individual Voluntary Arrangement - is. Many believe it's a fail-safe way of alleviating debt, and think it should be more widely available for people with mounting debts.
An IVA is a legally binding agreement between a debtor and creditors, which ensures you pay off all your unsecured debts, provided they total over £15,000, in a fixed plan. Over a period of 5 years you pay a reduced amount which is more affordable to you and the interest is frozen to prevent the debt increasing further. At the end of the 5 years the debt is classed as settled, and the remaining amount dissolved.
It's seen as a preferable option to bankruptcy, which tends to be a very high-risk and humiliating experience for most. When you file for bankruptcy all your major assets, including your house, can be seized to pay off your debts, whereas an IVA enables you to keep your assets - and pride - while clearing your debts.
An IVA, when settled, will stay on your credit file for 6 years. However, filing an IVA will shatter your credit rating, making it extremely difficult to get credit for anything, even as small as a mobile phone contract. Getting things like loans and credit cards will be virtually impossible.
As a form of debt management, an IVA should be a last resort, only one step above bankruptcy. It's true that an IVA will enable you to get your life back on track, but explore all other options before going ahead with one. If you miss payments on an IVA you risk bankruptcy unless you get the permission of your IVA supervisor. Even then, it's unusual to be allowed more than 2 missed payments during the 5 year term, and only then if it'd deemed an emergency.
If your debts don't exceed £15,000, or you feel you don't need to go as far as an IVA, there are other ways to get out of debt. A debt consolidation loan, available to all except the worst credit scores, will allow you to pay off all your debts in one fell swoop, leaving you with a single monthly payment instead. These can take two forms. The first, and most favourable, is to apply for a loan with an independent lender or bank, and pay off the debts yourself after contacting all your creditors. The other way, which could mean higher interest, is to go through a debt consolidation company which will contact all your creditors on your behalf and pay off your debts with them. You would then pay the consolidation company instead.
Whichever consolidation method you choose, the important thing is to keep up with the repayments. Anyone can fall into arrears once, but if you do it consistently it may be worth seeking some debt counseling instead.

Source: ezinearticles.com