Clearly Contrasting an Individual Voluntary Arrangement with Bankruptcy
In striving to cope with personal insolvency it's practically certain that the person in debt needs to look into the two primary remedies to be found in the Uk, namely entering into an Individual Voluntary Arrangement (IVA) or petitioning for Bankruptcy. Of course there could in particular cases be other more beneficial options open to the debtor however they generally belong to the category of the kindness of strangers or of the generosity of a family member. Really, because doing nothing is not an alternative, most individuals have to go with one of the twin pillars of British legislation governing the resolution of personal insolvency. In the end, no matter what the quality or quantum of advice looked for, it will fall to the insolvent party to decide on which route to decide on.
Before making that fateful final decision, the borrower really should compare the advantages and cons of each alternative from their own personal position while taking into consideration that other interested parties, especially lenders, can take a different sort of view of the matter. Let's explore the advantages of an IVA first.
An IVA provides the insolvent borrower with respite from their debts while enabling them to pay back as much of their liabilities as possible to their lenders. It avoids the stigma of bankruptcy with its linked disabilities, constraints and obligations while at the same time it makes it possible for the borrower to keep better control over assets by being in a position to hold on to their home and car. They are able keep hold of their job or if doing business on a self-employed basis, they can often continue in business for the full timeframe of the IVA, creating bigger yields for lenders.
An Individual Voluntary Arrangement is binding on all creditors, which includes dissenting lenders, provided that the IVA offer is supported by 75% or more of voting creditors, as measured by value. From the standpoint of creditors, an IVA most probably will produce a better level of realizations than bankruptcy, and the administrative expenses of an IVA are appreciably less than those in bankruptcy. Those two features produce greater returns for creditors. The borrower is subject to less publicity in an IVA and avoids the obligatory publication in papers and other journals which is standard practice in bankruptcy. If the debtor's circumstances transform drastically over the duration of the IVA its terms may, with the agreement of lenders, be modified.
There is minimal and reducing court involvement in an IVA and government policy has been to simplify IVA processes for the benefit of debtors and lenders alike. The administration of IVAs is nonetheless highly controlled. The insolvency practitioner's activities are subject to inspection and auditing by his or her own regulatory body which wields significant powers of sanction for non-compliance. The insolvency business in general is regulated by the DTI with oversight review by the OFT for the consumer.
Once an IVA is accepted, creditor communication with the borrower ceases, interest on all unsecured debts is suspended and penalties are stopped. All liabilities are dealt with and written off in a known and finite time period, usually five years. In the majority of IVAs the borrower makes affordable monthly payments out of disposable earnings and might have to contribute a lump sum if he or she owns property that is in positive and realisable equity. A short term IVA can be agreed upon by creditors where the debtor has hardly any disposable income but can offer a single one-off lump sum payment, with the funds usually coming from the proceeds of the sale of property or through the aid of a third party like a family member.
There are also several downsides with an IVA. The insolvent borrower has to pay the set-up, administration and disbursement expenses of the IVA. There isn't any time related automatic release from an IVA comparable to what is obtainable in bankruptcy. The time period of an IVA during which payments must be made is normally five years compared to a maximum of three years in bankruptcy. If the IVA is not accepted, lenders are free to pursue other legal actions such as petitioning for the debtor's bankruptcy, obtaining court judgments against the debtor or registering charges on the debtor's assets. A high level of creditor acceptance is needed to accept the IVA. At the very least 75% by value of the voting lenders must accept the debtor's proposals for the IVA to be approved.
Creditors also may demand variations to a debtor's IVA offer which normally have the effect of increasing the debtor's monthly contributions. Lenders often curtail the debtor's allowances for cost of living to a more significant extent than what is allowed in bankruptcy. The increased financial obligation on the debtor can cause the IVA to break down in the course of its term of supervision if the borrower is unable to sustain the enhanced amount of contributions demanded. For the last number of years creditors have used the services of voting agencies to work strongly on their behalf at the meetings of lenders where IVAs are accepted or declined. Such firms try to maximize the dividend yield from the IVA on behalf of lenders. This is done by getting enhanced contributions from the debtor and by lowering the service fees of the insolvency practitioner (IP). This two-pronged approach adds to the odds that the IVA may fail in supervision, if the borrower is unable to maintain payments, and makes the IVA less commercially worthwhile for the IP. Employing such voting agencies adds overheads to the IVA process but creditors may feel that efficiencies attained and increased debtor contributions result in increased net dividend yields.
The borrower is stopped from participating in any more borrowing during the life of the IVA, except with the express consent of the supervisor and creditors. The borrower will suffer from the consequences of a bad credit score even following completion of the time period of the IVA with his or her name continuing to appear on credit files, as managed by the credit reference agencies, for six years from the commencement of the IVA or from the date when the delinquency was first recorded.
Let us look next at the advantages of bankruptcy. Commencing the course of action is quite easy since insolvent debtors may petition for their own bankruptcy. Lenders may also petition for a debtor's bankruptcy. The cost of petitioning is comparitively modest - around 700 at this time. No other legal expenses are incurred. Citizen Advice Bureau officers and Court officers will assist the borrower in completing simple and easy forms and submitting them. The borrower is automatically released from bankruptcy after one year, if it is a first time bankruptcy. Most, if not all, liabilities will not survive the bankruptcy. All communication between the bankrupt debtor and lenders ends with the debtor experiencing the consequent diminished pressure and hassle.
The time-span in which the borrower has to make contributions is limited. Income Payments Orders (IPOs) and Income Payments Agreements (IPAs) are restricted to three years and often no IPO or IPA is applied where the debtor's disposable income is thought to be too low. The borrower receives more favorable I&E allowances than are granted in an IVA and as a result is left with more money on which to live, although this advantage has waned to some extent in recent years.
There are also significant downsides to bankruptcy. Until recently and even today the foremost disadvantage for many individuals was the stigma of bankruptcy with its linked disabilities, obligations and restrictions which made it hard and frequently impossible for the debtor to trade (commence or continue) or to get or hold on to employment. Bankruptcy can be a career breaker with many disciplines and trades imposing sanctions on bankrupt people in their associations, which includes the supreme sanc
Before making that fateful final decision, the borrower really should compare the advantages and cons of each alternative from their own personal position while taking into consideration that other interested parties, especially lenders, can take a different sort of view of the matter. Let's explore the advantages of an IVA first.
An IVA provides the insolvent borrower with respite from their debts while enabling them to pay back as much of their liabilities as possible to their lenders. It avoids the stigma of bankruptcy with its linked disabilities, constraints and obligations while at the same time it makes it possible for the borrower to keep better control over assets by being in a position to hold on to their home and car. They are able keep hold of their job or if doing business on a self-employed basis, they can often continue in business for the full timeframe of the IVA, creating bigger yields for lenders.
An Individual Voluntary Arrangement is binding on all creditors, which includes dissenting lenders, provided that the IVA offer is supported by 75% or more of voting creditors, as measured by value. From the standpoint of creditors, an IVA most probably will produce a better level of realizations than bankruptcy, and the administrative expenses of an IVA are appreciably less than those in bankruptcy. Those two features produce greater returns for creditors. The borrower is subject to less publicity in an IVA and avoids the obligatory publication in papers and other journals which is standard practice in bankruptcy. If the debtor's circumstances transform drastically over the duration of the IVA its terms may, with the agreement of lenders, be modified.
There is minimal and reducing court involvement in an IVA and government policy has been to simplify IVA processes for the benefit of debtors and lenders alike. The administration of IVAs is nonetheless highly controlled. The insolvency practitioner's activities are subject to inspection and auditing by his or her own regulatory body which wields significant powers of sanction for non-compliance. The insolvency business in general is regulated by the DTI with oversight review by the OFT for the consumer.
Once an IVA is accepted, creditor communication with the borrower ceases, interest on all unsecured debts is suspended and penalties are stopped. All liabilities are dealt with and written off in a known and finite time period, usually five years. In the majority of IVAs the borrower makes affordable monthly payments out of disposable earnings and might have to contribute a lump sum if he or she owns property that is in positive and realisable equity. A short term IVA can be agreed upon by creditors where the debtor has hardly any disposable income but can offer a single one-off lump sum payment, with the funds usually coming from the proceeds of the sale of property or through the aid of a third party like a family member.
There are also several downsides with an IVA. The insolvent borrower has to pay the set-up, administration and disbursement expenses of the IVA. There isn't any time related automatic release from an IVA comparable to what is obtainable in bankruptcy. The time period of an IVA during which payments must be made is normally five years compared to a maximum of three years in bankruptcy. If the IVA is not accepted, lenders are free to pursue other legal actions such as petitioning for the debtor's bankruptcy, obtaining court judgments against the debtor or registering charges on the debtor's assets. A high level of creditor acceptance is needed to accept the IVA. At the very least 75% by value of the voting lenders must accept the debtor's proposals for the IVA to be approved.
Creditors also may demand variations to a debtor's IVA offer which normally have the effect of increasing the debtor's monthly contributions. Lenders often curtail the debtor's allowances for cost of living to a more significant extent than what is allowed in bankruptcy. The increased financial obligation on the debtor can cause the IVA to break down in the course of its term of supervision if the borrower is unable to sustain the enhanced amount of contributions demanded. For the last number of years creditors have used the services of voting agencies to work strongly on their behalf at the meetings of lenders where IVAs are accepted or declined. Such firms try to maximize the dividend yield from the IVA on behalf of lenders. This is done by getting enhanced contributions from the debtor and by lowering the service fees of the insolvency practitioner (IP). This two-pronged approach adds to the odds that the IVA may fail in supervision, if the borrower is unable to maintain payments, and makes the IVA less commercially worthwhile for the IP. Employing such voting agencies adds overheads to the IVA process but creditors may feel that efficiencies attained and increased debtor contributions result in increased net dividend yields.
The borrower is stopped from participating in any more borrowing during the life of the IVA, except with the express consent of the supervisor and creditors. The borrower will suffer from the consequences of a bad credit score even following completion of the time period of the IVA with his or her name continuing to appear on credit files, as managed by the credit reference agencies, for six years from the commencement of the IVA or from the date when the delinquency was first recorded.
Let us look next at the advantages of bankruptcy. Commencing the course of action is quite easy since insolvent debtors may petition for their own bankruptcy. Lenders may also petition for a debtor's bankruptcy. The cost of petitioning is comparitively modest - around 700 at this time. No other legal expenses are incurred. Citizen Advice Bureau officers and Court officers will assist the borrower in completing simple and easy forms and submitting them. The borrower is automatically released from bankruptcy after one year, if it is a first time bankruptcy. Most, if not all, liabilities will not survive the bankruptcy. All communication between the bankrupt debtor and lenders ends with the debtor experiencing the consequent diminished pressure and hassle.
The time-span in which the borrower has to make contributions is limited. Income Payments Orders (IPOs) and Income Payments Agreements (IPAs) are restricted to three years and often no IPO or IPA is applied where the debtor's disposable income is thought to be too low. The borrower receives more favorable I&E allowances than are granted in an IVA and as a result is left with more money on which to live, although this advantage has waned to some extent in recent years.
There are also significant downsides to bankruptcy. Until recently and even today the foremost disadvantage for many individuals was the stigma of bankruptcy with its linked disabilities, obligations and restrictions which made it hard and frequently impossible for the debtor to trade (commence or continue) or to get or hold on to employment. Bankruptcy can be a career breaker with many disciplines and trades imposing sanctions on bankrupt people in their associations, which includes the supreme sanc
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