According to the latest Bank of England figures, we actually repaid more unsecured debt than we borrowed in April. It was the first time UK residents had done this since November last year, so it’s good to see people making a ‘dent’ in their debts.
In total, we repaid £136m more unsecured debt than we took on throughout the month. It sounds like a lot (and it is) but of course that’s spread out over the whole population, with some repaying more, others less - and others ‘bucking the trend’ and getting deeper into debt.
One major factor in all this, of course, is the recession and its after-effects. It may be behind us now, but how many people have seen their incomes drop over the last few years? How many have started focusing on repaying their debts as a result of the economic problems of the last few years?
A falling income - and a rising cost of living - can have a huge impact on someone’s ability to stay on top of their debt payments, which is one reason we’re seeing record numbers of bankruptcies and IVAs (Individual Voluntary Arrangements).
But that doesn’t mean insolvency’s necessarily a bad idea. For people who are struggling to cope with debts they just can’t afford, entering bankruptcy or an IVA can be the best solution to their problems.
So what’s the difference between an IVA and bankruptcy? What are the consequences? And how does someone know if they’d be better off entering an IVA or being declared bankrupt?
IVAs and bankruptcies - how are they similar?
First of all, IVAs and bankruptcies are both forms of insolvency. They both give people the chance to repay what they can afford of their debt - and write off the remainder that they can’t afford to repay.
However, there are some kinds of debt that neither an IVA nor bankruptcy can write off, like secured debts (e.g. mortgages) and court fines.
IVAs and bankruptcies will both affect the individual’s ability to get credit, placing restrictions on their borrowing while they’re in progress and staying on their credit rating for six years from the time they start.
IVAs and bankruptcies - how are they different?
There are many differences between IVAs and bankruptcies, but here’s a look at some of the main ones.
First of all, the difference in duration is quite an obvious one. Most IVAs will last for five years. A bankruptcy will normally last for one year, although the individual may have to make payments for three years, and if a Bankruptcy Restriction Order is granted (which is very rare), this can last for 15 years.
Then there’s the question of privacy. IVAs and bankruptcies will both appear in the publicly available Individual Insolvency Register. A bankruptcy, however, will also be advertised in newspapers - while an IVA will not.
As for employment prospects, there are certain positions which people cannot hold if they’ve been made bankrupt - like local government councillor, or company director. When it comes to IVAs, this isn’t set in stone - there are some companies that won’t employ someone with an IVA, but this is up to them.
Finally, there’s the effect an IVA or bankruptcy can have on someone’s property. Bankruptcy will require you to release equity in excess of £1,000 and can result in the sale of your home. An IVA, on the other hand, is very unlikely to result in the sale of your home, although it may well require homeowners to release equity near the end of the IVA.
IVA or bankruptcy - which is right for me?
This isn’t an easy question to answer, but in general:
An IVA can be more appropriate for someone who owns their own home, works in an area where being made bankrupt could be a problem, and/or doesn’t want any publicity about their insolvency. Note that they would, in most cases, have to be able to make regular contributions to the IVA.
If someone’s facing serious debts and owns little in the way of assets, bankruptcy could be more appropriate than an IVA if their income is low and their financial circumstances aren’t likely to get any better.
Having said that, it’s a complicated question which depends on a range of factors. If you’re considering insolvency, you’ll need to talk to an expert to find out whether an IVA or bankruptcy - or neither - would be appropriate for you.
. Don’t get me wrong. We will make a mistake sooner or later and we’re still riding the downside of our sell the market call at 11,100 BP was our first buy issue during this downturn.
