Difference between IVA and Bankruptcy

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Bankruptcy and IVA (Individual Voluntary Arrangement) are both formal and legally binding arrangements that exist between two people. The contract is normally between one party and his creditors whereby the creditor is expected to comply with the contract till its maturity. Bankruptcy and IVA are both approved by courts of law.

Individual Voluntary Arrangement

IVA is a legally binding contract between the creditor and yourself. 5 years is the time period of this contract and one is required to pay what he is able to outside the personal expenditure. IVA entails all loans that are unsecured and the agreement may only be initiated through a professional that is licensed referred to as an Insolvency Practitioner (IP).

The objective of this arrangement is in helping people during times of financial difficulties and in devising a formal contract of settling the debt’s unsecured portion in a reasonable period of time. Any financial charges and interest payments are normally locked at 0 % and creditors are prohibited to demand extra payments.


On the other hand, bankruptcy is a legal proceeding involving an individual who is not able to pay a loan that is still outstanding. It is the debtor who initiates the process by filing a petition on the creditor’s behalf. The debtor’s assets are evaluated carefully and quantitatively measured in order to be used for repaying the loan. Upon the completion of this arrangement’s proceedings, the debtor gets discharged of every financial liability that he was able to pay before filing for bankruptcy. Creditors are thus offered a fair chance of retrieving the repayment portion on the basis of assets available.

Both Bankruptcy and IVA have got risks and benefits associated with them. In a bid to find out the preferred option, it is important to find out the purpose of each of the agreements and their differences too.


Agreement duration- For an IVA, the period of the arrangement usually takes 5 to 6 years if equity is not released. However, the time period of an arrangement takes just a year. Nevertheless, there are times when one has to make payments for a period of 3 years.

Property’s effect- For an IVA, one does not have to dispose off his property like a home. Nevertheless, there may be times when you may be expected to have the property released. This may be expensive and difficult to do keeping in mind the impact that IVA has on credit ratings. For Bankruptcy however, any equity that exceeds a certain amount (for UK £1,000) is expected to be released and if need be, one may even end up selling his house.

Advertisement – IVA is normally not advertised even though it appears in the Insolvency Register of the individual and available to anybody in the public. On the other hand, a Bankruptcy arrangement has to be advertised in the papers.

Impact on Career – An IVA hardly affects your employment opportunities even though some organizations do not hire individuals that have an IVA. However, under legal obligations, an individual who has gone through a bankruptcy arrangement may not carry out certain jobs. For instance, an individual may not work as a councilor in the local government or be a company director incase he is declared bankrupt. Just like AVA, bankruptcy may affect your ability to carry out other jobs if included in employment conditions.

Judicial Investigation – For an IVA, no judicial investigations are required on financial matters. However, for bankruptcy, your financial matters are investigated by the official receiver who then reports any irregularities to the court concerned. This may also lead to criminal lawsuits.

Generally, it is recommended that one goes for an IVA in case you want to protect a complex asset such as family share or in case you hold a significant position that may be affected by bankruptcy. However, failure to make a mandatory payment for IVA will result to cancellation of this arrangement and a creditor may carry on with bankruptcy proceedings.

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