Which type of procedure really depends on your financial picture. Each has pros and cons.

An individual struck with serious financial difficulties most likely will find bankruptcy proceedings as the preferred type. Bankruptcy Petitions are faster to complete, giving the debtor a financial “fresh start” without the years of sacrifice. On the other hand, an IVA offers an alternative if the debtor has a steady income, a stable job, and wants to pay off most or all of his or her debts.

The advantages and drawbacks are summarised briefly in the next pages.

(i) BANKRUPTCY Issues in Bankruptcy:-

1. The amount of debt you can erase is not limited.

2. Unpaid balances due after assets are distributed are erased (”discharged” in bankruptcy language).

3. Wages you earn and property you acquire (except for inheritances) after the bankruptcy filing date are normally yours, not the creditors or bankruptcy court. Please note however that the Court can still make an Order such that the income of the bankrupt during the course of the bankruptcy be partly paid into the bankruptcy. In addition, windfall assets can also be taken by the Trustee for the benefit of the creditors.

4. The minimum amount of debt required is £750.00.

5. If the debtor petitions for his or her own bankruptcy, then a Bankruptcy Order can be obtained more or less immediately. The bankruptcy period will cover either two or three years depending on the nature of the bankruptcy. This can be extended indefinitely depending upon circumstances, although this is not particularly the case.

6. You lose your non-exempt property which is sold by the Trustee. Exempt assets are assets such as by way of example only, damages from personal injury.

7. Some debts survive and can be collected after your case is closed (e.g. mortgage charges).

8. If facing repossession of your home, lender’s efforts are not stalled by the Bankruptcy Order.

9. Co-signors of a loan can be stuck with your debt unless they seek similar protection.

10. Bankruptcy damages your credit rating.

11. Your pension rights i.e. your ability to claim your pension when it matures can be adversely affected. This is because your pension could fall into your bankruptcy. There are circumstances whereby if a pension does not fall into your bankruptcy, although each pension policy will have to be examined in detail to ascertain as to whether or not it falls into the bankruptcy. Therefore if the debtor has a pension policy, it is vitally important that he seeks professional advice of either an IP or a bankruptcy lawyer prior to petitioning for his own bankruptcy.

12. It is possible that you could lose your house. All of your equity in your house will automatically vest in your Trustee in bankruptcy upon his or her appointment. If you have a joint mortgage or a partner who has an interest in your property then their share will remain with them. Their share will not become the property of the Trustee. There will ordinarily be a legal presumption which will prevent the Trustee from seeking possession of the matrimonial home for one year after making the Bankruptcy Order. This presumption will then cease.

(ii) IVAs Issues in IVAs:-

1. You keep all your property, exempt and non-exempt.

2. You have a longer period of time to pay the debt.

3. The debts that are not cancelled although the amount repaid can be negotiated with creditors.

4. You have protection against creditor’s collection efforts.

5. Any co-signers are immune from the creditor’s efforts so long as the IVA provides for full payment.

6. Typically the costs of an IVA will initially be greater than those for a Bankruptcy Petition. This is because an IP will require payment usually in advance in order to draft a Proposal and deal with matters. There will also be legal costs. In the long term however, the costs of an IVA are likely to be much less than that of a Bankruptcy Order. This is because the assets which are liquidated by the Trustee in Bankruptcy will be subject to statutory costs which are relatively large. In the course of an IVA, once it is up and running those costs do not apply. Instead, the Supervisor will require payment for his activities of supervising the arrangement although these should not be too great.

7. You can apply for an IVA even when you are the subject of a Bankruptcy Order. This could be in the eventuality that during the course of the bankruptcy you decide that you would prefer the protection offered by an Individual Voluntary Arrangement.

8. Whilst there is no limit to the number of Individual Voluntary Arrangements that an individual can enter into, there has to be a gap of at least one year between each Application for an Interim Order.

9. You can separate your creditors by class. Different classes of creditors receive different percentages of payment. This enables you to treat debts where there is a co-debtor involved on a different basis than debts incurred on your own.