It is estimated that approximately 1 million people are at the point of declaring bankruptcy in the UK. This is an option that is considered when a person can no longer afford to make payments towards their debts. However, people will often go straight to court to declare themselves as bankrupt, without the advice of IVA advisors (such as Finance Inc.) or talking to an Insolvency Practitioner.

It is important to understand that bankruptcy is an extreme method for dealing with debts you cannot pay. This is because there are many negative consequences that come with declaring bankruptcy, which can be avoided should you choose to undertake an IVA instead. Some of the consequences of bankruptcy are highlighted below: -

• carrying on business (directly or indirectly) in a different name from that in which you were made bankrupt, without telling all those with whom you do business the name in which you were made bankrupt; being concerned (directly or indirectly) in promoting, forming or managing a limited company, or acting as a company director, without the court?s permission, whether formally appointed as a director or not. obtaining credit of £500 or more either alone or with another person, without disclosing your bankruptcy.
• Your credit rating and finances are publicly scrutinised in court
• Loss of control of assets such as a house or car

An IVA on the other hand, presents you with more advantages. For example: -

• You are able to maintain your status in your company (should you choose to do so)
• You can keep control of your home and car, and even have the freedom to get a new mortgage
• The IVA programme is a private arrangement

Furthermore, the Government favours IVAs over bankruptcy. This is because IVAs are dealt with by private Insolvency Practitioners as opposed to the Department of Trade and Industry (office of the Official Receiver). This means that the more people choose IVAs as an option, the less pressure is placed on Government resources.

Why a loan won’t help

When you have reached a situation where you can no longer afford to pay your existing creditors, it is not advisable to take out a further loan. This can lead to further financial problems and ultimately risking your home if you secure all your debt against your property.

A common misunderstanding with IVAs is that they are the same as debt consolidation loans. This is not true for the following reasons: -

• With an IVA, the combined debt that you agree to pay back is not a loan. The Insolvency Practitioner, will take the lump sum and divide this among your creditors
• With a debt consolidation loan, you will replace lots of smaller debts with one large debt. An IVA on the other hand, pays of all of your debts without accumulating a further burden
• The IVA is not secured against your property, a debt consolidation loan is