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

Compare IVA and bankruptcy in the UK. Understand the differences, who qualifies, impact on your life, and which debt solution might be best for your situation.

By PocketWise · · 5 min read

If you're struggling with debt, free confidential help is available from StepChange (0800 138 1111), National Debtline (0808 808 4000), and Citizens Advice.

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.

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Sources

  1. GOV.UK — Individual Voluntary Arrangements
  2. Insolvency Service
  3. GOV.UK — Bankruptcy