Did you know that one person is becoming bankrupt or entering into an IVA in every 3.3 minutes in UK? The experts believe that the average number of people will be 435 / day throughout 2009.
The number is really big and it is steadily rising. According to the latest statistical data from the Insolvency practitioners in UK, the number of debtors or defaulters has increased by 60% since 2005.
Fact Sheet: IVA or Individual voluntary agreement was introduced in 1986 by the Insolvency Act in order to provide the debtors and defaulters with a better alternative to get out of debt.
While bankruptcy used to be the last resort for a debtor to deal with all his creditors, IVA came as a breath of fresh air, bringing in a better way to resolve their debt problems.
Here are some basic differences between IVA and Bankruptcy:
Social Stigma – Filing for bankruptcy brings in a social stigma for the defaulter or debtor. When a defaulter is pronounced bankrupt it gets published in the local newspaper along with the defaulter’s name, address and profession. This may seem quite humiliating to a lot of people.
However, IVA allows you to maintain privacy. The agreement is confidential and thus none but the concerned people know about it. IVA settlements are not published in newspaper.
Professional Hazards – Bankruptcy can take a toll on a person’s financial as well as professional life. If a person is declared bankrupt by the court then he loses the credibility to hold, manage, form or promote a company unless he gets a court order.
However, individual voluntary agreement enables a person to maintain his professional stature quite unaffected. While the debtor applies for an IVA he may continue with the same professional designation or run his own business as before.
Right to hold a public office – When a person files for bankruptcy he is not entitled to hold any public office. This affects the person financially as well as socially. An IVA does not lead the debtor in such a situation. With an IVA a person can continue to work in any public office.
Expenditure factor – Filing for bankruptcy can cost more than IVA. It is expensive for both the debtors and the creditors. IVA is comparatively affordable.
Keeping your assets intact – When a debtor is declared bankrupt, all his movable as well as immovable properties and vested in a trustee who sells them to repay the debts. While you go bankrupt you loose almost everything you have except certain properties like tools of your trade, spouse’s equity in a house etc.
Nevertheless, if the debtor applies for an IVA he does not require letting go his assets. He can keep them with a suitable agreement with the creditor.
IVA offers other benefits for the debtors too. With an IVA agreement the debtor can write off almost 75% of his existing debt and the repayments are made of the basis of debtor’s affordability. Within the tenure of the IVA schedule the creditors would not be able to harass their debtors. After a successful completion of the IVA the debtor will be considered debt free.
And do not forget that bankruptcy will stay in the credit report for 6 years.
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