For some, the recession has meant more than losing a job. It has also meant finding oneself in a position of being unable to keep up the payments on existing obligations. When this situation exists, many seek relief through bankruptcy. Others opt for an IVA or Individual Voluntary Arrangement in order to settle their debts. But which is the better option?
There is much to be said for an IVA. Creditors like them because they are likely to recover more of the amount owed them than through a bankruptcy. Debtors who just want some way to become debt free and pay their obligations to the best of their ability find that an IVA gives them that time they need to get back on their feet by reducing their several debts into one manageable monthly payment.
However, there are factors that could make an IVA a less attractive option over bankruptcy. One is the high fee for setting up the arrangement and handling the entire interaction with the courts and the creditors. Those fees are often either due up front or are bundled into the amount owed. This inflates the amount of debt, sometimes to an uncomfortable level. In addition, the monthly payment is set and cannot be changed, something that could cause severe problems if the debtor’s ability to pay is further eroded.
Only a financial professional can determine if a debtor would be better off going with an IVA or filing for bankruptcy. If you are facing this decision make sure you get professional and impartial debt management counselling before making any move. There may be a third option that would allow you to avoid both scenarios.
Tags: bankruptcy, debt management, IVA
An important factor to remember when weighing up the decision of choosing an IVA or bankruptcy, is that an IVA is usually better suited to debtors with assets they need to protect, such as a property. An IVA allows the debtor to keep the asset – although they may still be required to surrender any equity at the end of the IVA term.
In contrast, when going bankrupt the Official Receiver will demand that all ‘considerable assets’ are sold in order to pay off the debt.
So it really is dependent on the circumstance of the individual. For more information click on my name – Miss Moneypenny – above.