Bankruptcy Versus An Iva
A substantial number of people in the United Kingdom became insolvent in 2006 as they struggled to remain afloat under the weight of the £1.3 trillion in debt that UK consumers faced. Based upon reports by the Insolvency Service, 63,000 filed bankruptcy while 44,000 chose Individual Voluntary Arrangements(IVAs). IVAs have seen a higher level of grown than bankruptcy, perhaps because people many people do not want to suffer the social stigma of filing bankruptcy even though many times this may be the best option. A spokesperson for Consumer Credit Counseling Services warned that both IVAs and bankruptcy should only be used as last resorts, but you should choose the correct path when you are forced into insolvency.
What path you choose depends upon your personal circumstances. IVAs are the best solution for those who have a regular income, debts over £15,000, a major asset they wish to protect from seizure, a high level job, and enough discipline to follow through with the contract. The typical IVA client is a young professional with a good job that has simply gotten himself or herself in too much debt.
An IVA is a formal agreement sanctioned by the court between debtor and creditor. In return for a portion of the debt being removed at the end of the IVA period (between three and five years), the debtor promises to pay a set monthly payment. If the IVA contract fails, the debt returns to the original amount regardless of how much has been repaid, which will likely force the debtor into bankruptcy anyway.
In order for an IVA to work, the debtor must be able to afford to pay at least £200 per month on their debts, and if they are going to struggle in order to raise that amount throughout the term of the contract, they should look at options other than an IVA. That is the reason that most people who choose IVAs are employed in positions that pay higher salaries.
Homeowners are more likely to choose IVAs than renters. The benefit of this is that your home is largely protected from any seizure by credits, and you also have some influence over how other assets, such as cars, are treated. A creditor cannot force a debtor to sell their home in order to satisfy debts, but at the closure of the IVA contract, they can force them to revalue the property. If the property has risen in value, they do have a right to ask the debtor to release the equity in order to make a final payment on the outstanding debt. If a debtor is driving an expensive car, a credit can also ask them to sell it and buy a cheaper model, using the difference to pay creditors.
Most professionals who find themselves too deeply into debt usually choose IVAs over bankruptcy because choosing bankruptcy means that they must obtain permission from the court to become involved in the promotion, formation, or management of a company. Their professional accreditation will also suffer if they work in financial careers such as accounting.
At the end of an IVA contract, the amount that is written off can be up to 75 percent; however, lenders are tightening the reins on the number of IVAs the approve as well as how much of the debt they are willing to write off. In the past, HSBC used to accept IVAs that gave them twenty-five pence on every £1, but they have now raised the minimum to forty pence per £1 of loan value.
Insolvency practitioners arrange IVAs, which can have start up costs that run into the thousands. The insolvency companies claim that the consumers do not bear the cost of these expenses, but the harsh reality is that during the first year of the contract, all repayments go to the insolvency practitioner.
Keep in mind there are some good and bad points to filing an IVA.
Pros
• You do not have to sell major assets such as your house
• You are not restricted from any employment
• Between one half and two thirds of the debt may be written off at the end of the contract
Cons
• The process is long and brittle. If the program fails, you are right back where you were on day one.
• If the value of your property increases during the contract, credits can make further claims. By: Diana Middleton Article Source: http://www.ArticleDashboard.com Diana Middleton writes on matters relating to debt advice in the UK, and especially debt problems. She is particularly interested in personal finance, writing on best approaches to getting a secured loan, and the background issues relating to IVAs and debt consolidation.
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