IVA vs Bankruptcy UK — Which Debt Solution Is Right for You?

Struggling with serious debt? IVAs and bankruptcy are both formal solutions, but they work very differently. Here’s how to decide.

Quick Comparison

At a Glance

Factor	IVA	Bankruptcy
Duration	5-6 years	Discharged in 12 months
Monthly payments	Yes, based on affordability	Yes if you can afford, or none
Assets	Usually protected	May be sold
Home	Usually kept	May be at risk
Credit file	6 years	6 years
Cost	Paid from payments	£680 fee
Debt written off	Yes, remaining after IVA	Yes, on discharge
Public record	Yes (Insolvency Register)	Yes (Insolvency Register)

How an IVA Works

The Process

Stage	What Happens
1	Consult insolvency practitioner (IP)
2	IP assesses your situation
3	Proposal created for creditors
4	Creditors vote (75% value must agree)
5	If approved, IVA begins
6	Make monthly payments for 5 years
7	Year 5-6: equity release or extend payments
8	Complete IVA, remaining debt written off

What You Pay

Payment Basis	Details
Affordability	Based on income minus essential expenses
Typical amount	£100-£500/month
Duration	60 months (usually)
Example	£200/month × 60 = £12,000 paid to creditors

IVA Costs

Cost	Details
Setup fee	£5,000-6,000 typically
Paid from	Your monthly payments
No upfront fee	You don’t pay before approval
Total	Nominee + supervisor fees taken from pot

Assets in an IVA

Asset	What Happens
Home	Kept, but may need to release equity year 5-6
Car	Usually kept if essential
Pension	Protected
Savings	May need to contribute
Windfalls	Inheritance, lottery over £500 goes to IVA

How Bankruptcy Works

The Process

Stage	What Happens
1	Apply online (gov.uk)
2	Pay £680 fee
3	Official Receiver appointed
4	Assets assessed
5	Non-essential assets may be sold
6	If income allows, pay IBP/IPO for 3 years
7	Discharged after 12 months
8	Debts written off

Income in Bankruptcy

If You Have Surplus Income	What Happens
Assessment	Official Receiver calculates
Income Payment Order	Pay surplus for 3 years
Income Payment Agreement	Voluntary agreement to pay
Typical	Any income above essential needs

Bankruptcy Costs

Cost	Amount
Application fee	£680
Paid	Upfront (can be paid in instalments)
No ongoing fees	From your estate

Assets in Bankruptcy

Asset	What Happens
Home	May be sold if equity over £1,000
Car	Usually kept if modest and essential for work
Tools of trade	Usually kept (essential for work)
Household items	Usually kept (essential)
Pension	Protected
Savings	Usually taken
Valuables	Jewellery, art, etc. may be sold

Detailed Comparison

Who Qualifies

Criteria	IVA	Bankruptcy
Minimum debt	Usually £6,000+	No minimum
Number of creditors	Usually 2+	Any
Income	Need regular income	Can have no income
Assets	Doesn’t matter	Doesn’t matter
Affordability	Must afford payments	Can be no spare income

Impact on Home

Scenario	IVA	Bankruptcy
No equity	Home protected	Usually safe
Positive equity	Release equity year 5-6 or extend	May be sold
Negative equity	Protected	Usually safe for now
Joint mortgage	Complex, seek advice	Complex, seek advice

Impact on Work

Job Type	IVA	Bankruptcy
Most jobs	No effect	No effect
Financial services	May be prohibited	Often prohibited
Legal profession	Possible issues	Likely issues
Military	Check regulations	Check regulations
Company director	Can continue	Can’t be director
Police/MOD	Check	Check

Impact on Family

Factor	IVA	Bankruptcy
Spouse’s assets	Not affected	Not affected
Joint debts	Both must deal with	Both must deal with
Joint mortgage	Complex	Complex
Partner’s credit	Technically separate	Technically separate

When to Choose an IVA

IVA Is Usually Better If

Situation	Why IVA
You own a home	Protected from sale
Stable regular income	Can make monthly payments
Debts £15,000+	Worthwhile process
Want to avoid bankruptcy	Less stigma
Professional restrictions	Job prohibits bankruptcy
Have vehicle for work	Usually protected

IVA Example

Scenario	Details
Debts	£35,000
Monthly payment	£250
Duration	60 months
Total paid	£15,000
Written off	£20,000
Home	Protected

When to Choose Bankruptcy

Bankruptcy Is Usually Better If

Situation	Why Bankruptcy
No assets	Nothing to lose
Very low/no income	Can’t afford IVA payments
Very high debts	£100,000+
Want quick resolution	12 months to discharge
No home to protect	No property at risk
Already lost job due to debt stress	Fresh start

Bankruptcy Example

Scenario	Details
Debts	£50,000
Assets	None (renting)
Income	Low/benefits
Cost	£680
Duration	12 months
Written off	£50,000
Payments	May be none, or 3-year order if income

What Both Have in Common

Debts Written Off

Included	Not Included
Credit cards	Student loans
Personal loans	Child maintenance
Overdrafts	Court fines
Catalogue debts	Fraud-related debts
Utility arrears	Some benefit overpayments
Store cards	Criminal compensation orders

Credit Impact

Factor	Both the Same
Credit file	6 years from start
Borrowing	Very difficult during
Bank accounts	May need basic account
After completion	Can rebuild

Public Record

Register	Both Listed
Individual Insolvency Register	Yes
Searchable online	Yes
Duration	During process + 3 months (IVA) or discharge + 3 months (bankruptcy)

Alternatives to Consider

Before IVA or Bankruptcy

Option	Good For
Debt Management Plan (DMP)	Informal, no public record
Debt Relief Order (DRO)	Low income, few assets, debts under £30,000
Token payment plan	Very low income, temporary
Negotiating with creditors	One or two debts
Consolidation loan	If credit allows

Debt Relief Order (DRO)

Criteria	Requirements
Debts under	£30,000
Assets under	£2,000
Disposable income under	£75/month
Not homeowner	Don’t own property
Cost	£90
Duration	12 months then debts written off

Getting Advice

Free Debt Advice Organisations

Organisation	Contact
StepChange	stepchange.org
National Debtline	nationaldebtline.org
Citizens Advice	citizensadvice.org.uk
PayPlan	payplan.com

Insolvency Practitioners

For IVAs	You Need
Licensed IP	Find via insolvency-practitioners.org.uk
Free assessment	Most offer
Compare	Process and communication

What to Avoid

Warning Sign	Why
“Debt write-off” ads	Often lead to expensive solutions
Upfront fees	IVA should be paid from payments
Pressure to decide	Take time
Claims of easy fix	It’s serious process

After Completion

After IVA Completes

What Happens	Details
Remaining debt	Written off
Credit file	Cleared 6 years from IVA start
Restrictions	End
Fresh start	Can rebuild credit

After Bankruptcy Discharge

What Happens	Details
Debts	Written off
Restrictions	Most end
Credit file	Cleared 6 years from bankruptcy order
Income payments	May continue for 3 years total
Fresh start	Can rebuild credit

Summary: Which to Choose

Choose IVA If	Choose Bankruptcy If
Own your home	No home/assets
Regular income	Little/no income
Want to avoid “bankruptcy” label	Want quick resolution
Job restricts bankruptcy	Job doesn’t restrict
Can afford £100+/month for 5 years	Can’t afford payments
Debts £15,000-£100,000	Very high or low debts

Getting the right advice is crucial — what works for one person may not work for another. Speak to a free debt charity before making any decision.