When debts become unmanageable, an Individual Voluntary Arrangement (IVA) or bankruptcy might be the way forward. Both are formal insolvency solutions that can write off debt you can’t afford to repay, but they work very differently. This guide compares both options to help you understand which might suit your circumstances.
Quick Comparison
| Factor | IVA | Bankruptcy |
|---|---|---|
| Duration | 5-6 years | 12 months (usually) |
| Monthly payments | Based on affordability | Based on income calculations |
| Debt write-off | Remaining balance after IVA | Most debt written off immediately |
| Home | Usually keep, may release equity | Can be sold if equity exists |
| Application cost | Usually included in payments | £680 fee |
| Credit record | 6 years from start date | 6 years from bankruptcy order |
| Public record | Individual Insolvency Register | Gazette + Insolvency Register |
| Creditor involvement | Must agree to proposal | No creditor approval needed |
What Is an IVA?
An Individual Voluntary Arrangement is a legally binding agreement between you and your creditors to repay a proportion of your debts over 5-6 years.
How IVAs Work
- Assessment — Insolvency Practitioner (IP) reviews your finances
- Proposal — IP creates a payment plan based on affordability
- Creditor vote — Creditors holding 75%+ of debt must approve
- Monthly payments — You pay agreed amount for 5-6 years
- Completion — Remaining debt written off
IVA Payments
| Monthly Income | Typical IVA Payment | Over 5 Years | Typical Debt |
|---|---|---|---|
| £1,500 | £100-£150 | £6,000-£9,000 | £15,000-£30,000 |
| £2,000 | £150-£250 | £9,000-£15,000 | £20,000-£50,000 |
| £2,500 | £200-£350 | £12,000-£21,000 | £25,000-£60,000 |
| £3,000 | £250-£450 | £15,000-£27,000 | £30,000-£80,000 |
Note: Actual payments depend on your full financial circumstances, not just income.
IVA Costs
| Cost Type | Amount | When Paid |
|---|---|---|
| Nominee’s fee | £1,500-£2,500 | From initial payments |
| Supervisor’s fee | 15-25% of payments | Throughout IVA |
| Equity release fee | Varies | Year 5/6 if applicable |
Fees are typically taken from your IVA payments, not paid upfront.
IVA Requirements
- Debts typically £10,000+ (to be cost-effective)
- At least 2 creditors (usually)
- Regular income to make payments
- Unable to pay debts in full within reasonable time
- English, Welsh or Northern Irish resident
What Is Bankruptcy?
Bankruptcy is a court order that declares you legally unable to pay your debts. Most debts are written off and you get a fresh start, but the Official Receiver can sell your assets to pay creditors.
How Bankruptcy Works
- Application — Apply online and pay £680 fee
- Adjudicator review — Usually decides within 28 days
- Bankruptcy order — Made if application accepted
- Official Receiver — Takes control of your assets and finances
- Discharge — Usually after 12 months, debts written off
Bankruptcy Costs
| Cost | Amount | Notes |
|---|---|---|
| Application fee | £680 | Paid upfront, online |
| Asset sales | Variable | From your property/possessions |
| Income payments | Variable | If income above threshold |
Income Payments Agreement/Order (IPA/IPO)
If your income exceeds essential expenses by £20+ monthly, you’ll pay the surplus for 3 years:
| Monthly Surplus | Annual Payment | Total Over 3 Years |
|---|---|---|
| £50 | £600 | £1,800 |
| £100 | £1,200 | £3,600 |
| £200 | £2,400 | £7,200 |
| £300 | £3,600 | £10,800 |
Bankruptcy Requirements
- Unable to pay debts as they fall due
- £680 application fee
- English, Welsh or Northern Irish resident
- No minimum debt level (but must be worthwhile)
Comparing Impact on Your Home
IVA and Your Home
| Situation | What Happens |
|---|---|
| Renting | No impact on tenancy |
| Mortgage with no equity | Continue paying mortgage normally |
| Mortgage with equity | May need to release equity in year 5/6 |
| Equity release options | Remortgage, further advance, or extend IVA |
| Can’t release equity | Usually extend IVA by 12 months instead |
Bankruptcy and Your Home
| Situation | What Happens |
|---|---|
| Renting | No impact on tenancy (usually) |
| Mortgage with no/negative equity | May continue paying if affordable |
| Mortgage with equity under £1,000 | Interest in home claimed, not usually sold |
| Mortgage with equity over £1,000 | Home can be sold, but trustee has 3 years |
| Family home | Court considers family circumstances |
| Joint ownership | Only your share at risk |
Equity Calculation Example
| Value | Amount |
|---|---|
| Property value | £250,000 |
| Mortgage outstanding | £200,000 |
| Total equity | £50,000 |
| Your share (if joint) | £25,000 |
| At risk in bankruptcy | £25,000 |
| In IVA | May need to release some/all |
Comparing Impact on Employment
Restricted Professions
| Profession | IVA Impact | Bankruptcy Impact |
|---|---|---|
| Solicitor/Barrister | Must inform SRA/BSB | Cannot practice until discharge |
| Accountant | Must inform professional body | May be restricted |
| Financial services (FCA) | Must disclose | Cannot hold FCA-regulated roles |
| Police officer | Must disclose | May face restrictions |
| Armed forces | Must disclose | May affect clearance |
| Company director | Can continue | Cannot be director until discharge |
| Local councillor | Can continue | Disqualified during bankruptcy |
| MP | Can continue | Disqualified if bankrupt 12+ months |
General Employment
Most employers don’t check insolvency records. However:
- Both appear on public registers
- Some employers check for senior/financial roles
- Must disclose if asked on application forms
Comparing What’s Included
Debts Written Off
| Debt Type | IVA | Bankruptcy |
|---|---|---|
| Credit cards | ✓ | ✓ |
| Personal loans | ✓ | ✓ |
| Overdrafts | ✓ | ✓ |
| Store cards | ✓ | ✓ |
| Catalogue debts | ✓ | ✓ |
| Council tax (arrears) | ✓ | ✓ |
| Utility arrears | ✓ | ✓ |
| Benefit overpayments | ✓ | ✓ |
| HMRC debts | ✓ | ✓ |
| Payday loans | ✓ | ✓ |
Debts NOT Written Off
| Debt Type | Notes |
|---|---|
| Student loans | Never written off |
| Child maintenance | Must continue paying |
| Court fines | Criminal fines excluded |
| Debts from fraud | Cannot write off fraudulent debts |
| Confiscation orders | Proceeds of crime |
| Personal injury claims | If awarded against you |
| Social fund loans | Some may be excluded |
Comparing Impact on Credit
Credit Record Timeline
| Event | IVA | Bankruptcy |
|---|---|---|
| Entry on credit file | Day 1 | Day of bankruptcy order |
| Default markers | 6 years from default | 6 years from default |
| Insolvency marker | 6 years from IVA start | 6 years from bankruptcy order |
| Removal from register | 3 months after completion | 3 months after discharge |
| Credit file clear | 6 years from start | 6 years from order |
Getting Credit After
| Timeframe | IVA | Bankruptcy |
|---|---|---|
| During | Very limited, need IP approval | Not allowed without disclosure |
| 0-12 months after | Very difficult | Very difficult |
| 1-3 years after | Specialist lenders only | Specialist lenders only |
| 3-6 years after | Improving options | Improving options |
| 6+ years after | Normal credit rebuilding | Normal credit rebuilding |
Comparing Assets at Risk
IVA Assets
| Asset | Typically Kept | May Need to Address |
|---|---|---|
| Essential household items | ✓ | |
| Tools for work | ✓ | |
| Basic car | ✓ | High-value vehicle maybe |
| Savings | Use to reduce debt | |
| Significant assets | May need to release value | |
| Pension | ✓ | Ongoing contributions reviewed |
| Home | Usually | Equity release required |
Bankruptcy Assets
| Asset | Kept | Sold/Taken |
|---|---|---|
| Essential household items | ✓ | |
| Tools for work (to £1,875) | ✓ | Above limit |
| Basic vehicle (to £1,875) | ✓ | Above limit |
| Clothing | ✓ | |
| Valuable possessions | Sold | |
| Savings | Taken | |
| Investments | Taken | |
| Second properties | Sold | |
| Home with equity | Can be sold | |
| Pension pot | ✓ | Cannot be claimed |
| Future pension contributions | Can be redirected |
When to Choose an IVA
IVA May Be Better If:
- You’re a homeowner wanting to protect your property
- You have a profession restricted by bankruptcy
- You have disposable income for regular payments
- Your debts are £10,000-£100,000
- You want to avoid the stigma of bankruptcy
- You’re self-employed and want to continue trading
- You have assets you want to keep
Typical IVA Candidate
| Factor | Profile |
|---|---|
| Debt level | £15,000-£60,000 |
| Income | Regular employment, £1,500+/month |
| Home | Mortgage with some equity |
| Assets | Normal household, car |
| Profession | Financial services, legal, other restricted |
When to Choose Bankruptcy
Bankruptcy May Be Better If:
- You have no home or no equity in your property
- You have no significant assets
- You have little or no income
- You need a quicker fresh start
- Creditors have rejected an IVA proposal
- You have debts over £100,000
- You want certainty (no creditor approval needed)
- Your profession isn’t restricted
Typical Bankruptcy Candidate
| Factor | Profile |
|---|---|
| Debt level | Any level, often £10,000+ |
| Income | Low or irregular |
| Home | Renting or no equity |
| Assets | Minimal |
| Profession | Not restricted |
IVA vs Bankruptcy: Scenario Comparisons
Scenario 1: Homeowner with Stable Income
| Factor | Details |
|---|---|
| Debt | £30,000 |
| Income | £2,200/month |
| Home | £50,000 equity |
IVA: Pay ~£200/month for 5 years (£12,000 total), release equity in year 5/6, keep home.
Bankruptcy: Home potentially sold, £50,000 equity to creditors, possible IPA payments.
Better option: IVA — protects home.
Scenario 2: Renter with Low Income
| Factor | Details |
|---|---|
| Debt | £25,000 |
| Income | £1,300/month (benefits + part-time) |
| Home | Renting |
IVA: May struggle to afford meaningful payments, may fail.
Bankruptcy: Quick write-off, likely no IPA due to low income, fresh start in 12 months.
Better option: Bankruptcy — faster resolution, no extended payments.
Scenario 3: Self-Employed Professional
| Factor | Details |
|---|---|
| Debt | £40,000 |
| Income | Variable, £2,500/month average |
| Home | £30,000 equity |
| Job | Financial adviser (FCA regulated) |
IVA: Can continue working, keep home, pay from profits.
Bankruptcy: Cannot hold FCA role, must disclose, career ended.
Better option: IVA — preserves career.
The Application Process
IVA Process
| Step | Timeline | What Happens |
|---|---|---|
| 1. Free debt advice | Day 1 | Assess if IVA is appropriate |
| 2. Choose IP | Week 1-2 | Licensed insolvency practitioner |
| 3. Financial review | Week 2-4 | Full income and expenditure assessment |
| 4. Proposal drafted | Week 4-6 | Creates formal IVA proposal |
| 5. Creditor meeting | Week 8-14 | Creditors vote (75% must approve) |
| 6. IVA begins | If approved | Start monthly payments |
Bankruptcy Process
| Step | Timeline | What Happens |
|---|---|---|
| 1. Free debt advice | Day 1 | Confirm bankruptcy is appropriate |
| 2. Gather documents | Week 1 | Bank statements, debts list, assets |
| 3. Apply online | Day | Complete adjudicator application |
| 4. Pay fee | Day | £680 payment |
| 5. Adjudicator review | Up to 28 days | Reviews application |
| 6. Bankruptcy order | If accepted | Official Receiver takes over |
| 7. Discharge | 12 months | Debts written off, restrictions end |
Alternatives to Consider
Before choosing IVA or bankruptcy, consider:
| Option | Best For |
|---|---|
| Debt Management Plan | Can afford reduced payments, want flexibility |
| Debt Relief Order | Low income, few assets, under £30,000 debt |
| Breathing Space | Need 60 days to find a solution |
| Full and final settlement | Lump sum available, negotiate write-off |
| Token payment DMP | Very low income, minimal payments |
Getting Free Advice
Always get free, independent advice before choosing:
| Organisation | Contact | Specialism |
|---|---|---|
| StepChange | 0800 138 1111 | Full debt advice |
| National Debtline | 0808 808 4000 | Self-help resources |
| Citizens Advice | 0800 144 8848 | General advice |
| Business Debtline | 0800 197 6026 | Self-employed |
Never pay for debt advice — free services provide the same quality.
Summary
| Choose IVA If | Choose Bankruptcy If |
|---|---|
| Own home with equity | Renting or no equity |
| Profession restricted by bankruptcy | No professional restrictions |
| Regular disposable income | Low or no income |
| Want to repay some debt | Need immediate fresh start |
| Prefer gradual process | Want certainty (no creditor vote) |
| Have assets worth protecting | Few assets to lose |
Both options provide a legal route out of unmanageable debt. The right choice depends on your home situation, income, assets, and profession. Always speak to a free debt adviser before making this significant decision.