If you’re like most people in debt you’re trying to decide between filing an IVA or Bankruptcy. Millions of people make the wrong choice between the two, costing them thousands in unnecessary payments. Here’s the truth: debt repayment is going to sting a little but one plan will ding your credit, and the other will leave a large hole.
Both plans include a court-supervised repayment plan; however, a voluntary arrangement will allow you to keep more of your disposable income each month. Even the most disciplined person finds difficulty with a court-issued budget.
Voluntary Agreements Offer Better Negotiations
Voluntary Arrangements, better known as IVA’s, are one of the most commonly used debt consolidation plans used in the United Kingdom. This plan has become more popular than bankruptcy because of the flexibility. The biggest difference among the plans is that the debtor remains in control with IVA’s.
- This agreement shows creditors that you are making an honest effort to deal with your debt problems
- It allows debtors to work out a reasonable plan with creditors. Negotiations also allow creditors to reduce payments, drop late fees, and make other adjustments
- It will remain on your credit report for 6 years, while Bankruptcy remains for 10 years
- While not written in stone, creditors will typically receive more money towards what is owed to them than they would if the creditor filed for bankruptcy
Individual Voluntary Arrangements are also a good way to keep a relationship with a creditor. This type of flexibility allows you to explain reasons for your insolvency and may qualify you for continued credit with the lender in the future.
What Will You Give Up in Bankruptcy
Most debtors focus on the end result of bankruptcy without giving it considerable thought. The possessions you must give up and what you can keep depends upon the chapter of bankruptcy filed and the trustee. The trustee is the decision maker, and he or she can insist on selling assets to pay off creditors. The bankruptcy trustee can claim tax refunds, vacation pay coming to you or even life insurance cash values. Unbeknown to many, bankruptcy does not wipe out every debt—some can survive these proceedings. Given the huge variation in filing IVA’s or filing a bankruptcy, you can see why the popularity of IVA’s has skyrocketed.
The Impact on Credit
For those who enter into an agreement to restructure their debt as an Individual Voluntary Agreement a major concern is how it will affect their credit rating and if lenders will “black list” them. The short answer is, yes it will be difficult to regain new credit but keep in mind becoming debt free means sacrificing in order to rebuild.
All banks and financial institutions will refer to your credit history when determining your eligibility. The credit report contains anything that has happened in the history of an individual’s personal credit during the previous 6 years. The file will contain any credit, financing contracts in progress and completed, and any missed or late payments. The two main credit agencies in the UK are Equifax and Experian. Anyone can get a copy of their own credit report by applying to these online agencies
If you do reach a Voluntary Arrangement with creditors, then this agreement will appear on your credit report. Once you successfully complete your Individual Voluntary Arrangement, your insolvency practitioner will give you a certificate of completion. You must send it to regulators and request an update to your credit file. They will make a note on your credit report indicating that you are debt free in the eyes of the credit agencies; you have successfully repaid all your debts through the Individual Voluntary Arrangement.
The notice of default and negative trade lines will remain on your credit record for 6 years. During the last year you can begin to apply for new credit to rebuild. Indeed an Individual Voluntary Agreement will affect your credit rating for 6 years, but the impact a bankruptcy has on your credit rating it much worse and it last longer.