In the last 12 months, the number of personal insolvencies, in the UK, has increased by nearly 20%. In the first 3 months of 2009 there were 29,800 personal insolvency cases in Wales and England. The number of people signing up for an IVA, or Individual Voluntary Arrangement, has risen by 3.6% during the same period, whilst the number of bankruptcies has increased by only 0.5%.
A lot of consumers are unsure about the differences between an IVA and bankruptcy and it is important that professional IVA advice is sought before any long lasting decisions are made. There are serious considerations, for any potential debtor, before entering into an IVA, or declaring themselves bankrupt.
The IVA was introduced in order to provide financially overcommitted people, with an alternative to bankruptcy. Debts that can be included on an IVA include unsecured personal loans and overdrafts, as well as store card and credit card debt. The IVA is a legal contract between the creditors and the debtor, and it is supervised by a licensed Insolvency Practitioner. The term of the contract is fixed at the beginning, which typically allows the debtor to settle all of their accounts over 60 months.
The debtor will make monthly contributions into the IVA, based on how much disposable income the debtor has left once their priority expenses have been deducted from their income. The Insolvency Practitioner will distribute the money between the creditors, on a pro-rata basis, less any fees that the practitioner may charge. The monthly contribution, and the practitioner’s fees, has to be agreed between the debtor and the creditors. At the end of the IVA, any debt that is remaining will be written off. For individuals that do not qualify for an IVA, perhaps because their debt level is too low, a Debt Management Plan can offer a practical alternative.
A creditor can obtain a bankruptcy order for debts of £750, or higher. A debtor can declare bankruptcy by visiting the county court and completing the required paperwork. All of the assets, of the debtor, are then disposed of, and the proceeds are split between the creditors, less any fees that the Insolvency Practitioner may charge. Not all assets can be seized and sold, and exemptions include normal household possessions and contents, a family car, a pension fund and tools of a trade.
Bankruptcy usually ends after 12 months, at which point all debt problems should be a thing of the past. The downside is that the debtor may have to give up their assets, which could include the family home. With an IVA, there may be a requirement to raise funds by remortgaging, but the house should be safe.
