If you’re struggling with unmanageable debt, deciding between bankruptcy and an Individual Voluntary Arrangement (IVA) can feel overwhelming. Both are formal debt solutions designed to help people regain control of their finances, but they work in very different ways and suit different circumstances.
Understanding the key differences can help you make a more confident and informed decision.
What Is Bankruptcy?
Bankruptcy is a legal process that can write off most of your unsecured debts if you cannot afford to repay them. Once you are declared bankrupt, your finances are taken over by an Official Receiver or trustee, who manages your case.
Bankruptcy usually lasts 12 months, after which most remaining debts are written off. However, the financial and practical effects can last longer.
Key features of bankruptcy:
- Most unsecured debts are written off
- You may have to sell valuable assets, such as property or vehicles
- You may be required to make monthly payments for up to three years if you have spare income
- Your name appears on the public insolvency register
- Certain jobs and professions may be affected
Bankruptcy is often considered when debts are unmanageable and there’s little realistic chance of repaying them through another solution.
What Is an IVA?
An Individual Voluntary Arrangement (IVA) is a formal agreement between you and your creditors to repay part of your debts over a fixed period , usually five or six years.
Unlike bankruptcy, an IVA allows you to retain control of your assets, provided you stick to the agreed payments. At the end of the arrangement, any remaining unsecured debt included in the IVA is written off.
Key features of an IVA:
- Monthly payments based on what you can realistically afford
- Interest and charges frozen once the IVA begins
- Legal protection from creditor action
- Typically lasts five or six years
- Often suitable for people with a stable income
An IVA can be a structured and manageable solution for those who can maintain regular payments but need relief from mounting debt.
Key Differences Between Bankruptcy and an IVA
| Area | Bankruptcy | IVA |
|---|---|---|
| Length | Usually 12 months | Usually 5–6 years |
| Asset risk | Assets may be sold | Assets usually protected |
| Monthly payments | May be required | Required throughout |
| Employment impact | Some roles affected | Fewer restrictions |
| Public record | Insolvency Register and advertised in the Gazette | Insolvency Register |
| Credit impact | Remains for 6 years | Remains for 6 years |
Which Option Might Be Right for You?
Choosing between bankruptcy and an IVA depends on several personal factors:
Bankruptcy may be more suitable if:
- You have little or no disposable income
- You rent your home or have no significant assets
- Your debts are unmanageable and unlikely to be repaid
- You need a quicker financial reset
An IVA may be more suitable if:
- You have a regular income
- You want to protect assets such as your home
- You can afford a consistent monthly payment
- You want a structured alternative to bankruptcy
There is no one-size-fits-all answer , the right choice depends entirely on your financial circumstances.
How Do They Affect Your Credit Rating?
Both bankruptcy and an IVA will appear on your credit file for six years from the date they begin. During this time, it can be difficult to obtain credit, and any credit you are offered is likely to come with higher interest rates.
Once the six-year period ends, the record is removed, giving you the opportunity to rebuild your credit gradually.
Getting the Right Advice
Deciding between bankruptcy and an IVA is a significant financial decision that can affect your future for years. It’s important to fully understand the implications of each option before committing.
Speaking to a experienced debt adviser can help you:
- Understand which option best suits your situation
- Explore alternatives you may not have considered
- Avoid costly mistakes
Both bankruptcy and IVAs are legitimate debt solutions designed to help people regain control of their finances. Neither option is right or wrong, the right choice depends on your income, assets, debts, and long-term goals.
If you’re unsure which path is best for you, getting personalised advice can help you move forward with confidence and clarity.
