In an IVA but should he go Bankrupt instead?

tashou17

Hi there

My partner got himself into around £20k worth of debt he signed up to an IVA agreement just over a year ago and he did so under the advice of the IVA company (PayPlan). He received a statement and this shows that all he seems so be really paying off is the IVA companies fees and nothing is coming off the debt he owes at all. After looking into what these IVA companies do with your money a bit more and doing some in depth research (which he knows now he should have done before signing up) it seems that IVA was never the best option for him as he has no assets.

Now we know this. My question is would he be much better off just going bankrupt? If the answer is yes then what is the best way to do this?

Some forums say pay the money and fill in the form but others say, stop the payments to the IVA and wait for them to declare him bankrupt at which point, because the company has requested it he won't have to pay anything. Is this true? If it is true how long will it take (Or how many missed payments) for the IVA company to request it?
Any help or advice would be much appreciated
Thanks

sourcrates

Hi,

The IP’s fee’s come out of your monthly payments, the debt does not decrease with each payment, it doesn’t work like that, your IP makes disbursements at certain points throughout the arrangement, think very carefully before you do anything rash, if the IVA fails, it’s very unlikely his creditors would seek bankruptcy, why waste more money.

It would most likely go back to the debt collection stage, and all the hassle that entails.

He would probably have to petition for his own bankruptcy @ a cost of £680.

What has he got against the IVA ?

fatbelly

His IP will not make him bankrupt. Why would they waste money on that?

Neither can he declare bankruptcy while he is in an IVA - you can only have one form of insolvency at a time.

The decision he has to make is whether to continue with his payments or not.

He has less than four years of payments remaining. Bankruptcy would require paying his surplus income for three years, and it can take up to a year for his IVA to be terminated. So the decision will not be clear cut, particularly given that the bk fee is £680, any car would not necessarily be protected, and the bankruptcy would create a fresh mark on the credit file that would last six years.

Maybe he could have a chat with someone independent like National Debtline.

tashou17

The reason he was considering coming out of the IVA is that he has been led to think that going bankrupt might be cheaper in the long run. The debt would be written off after a year even though the mark on the credit file would remain for the same length of time. Is this true? He has no assets to protect as our house is soley in my name and we are not married.

mwarby

There's no special treatment for people who were in an IVA but later go bankrupt. The money paid and time served in the IVA would count for nothing in the bankruptcy

He would have to pay a similar amount for the next 3 years new income and expenditure, slightly different rules, he might be slightly better off each month or slightly worse off. Although the debt is written off after 1 year the repayments (if he's judged able to afford them) are for 3 years known as IPA or IPO (Income Payment Arrangement, or Order)

Credit file wise, yes IVAs and bankruptcy both last for 6 years. His IVA will show for 6 years from the date it was agreed, the bankruptcy would also show for 6 years from the date he was declared bankrupt. If he went bankrupt now his credit file would be adversely affected for 1-2 years longer than it would otherwise have been.

One advantage of bankruptcy however is that it cannot fail, after 3 years it would be done. An IVA could fail if there was a significant change of circumstances, which meant he could no longer make the repayments.

fatbelly

He may well have been better going for bankruptcy at the time but over a year into an IVA it's a more balanced decision.

I missed earlier that he was with Payplan who are usually helpful. If he needed a quick termination I think they would do that. It would also be worth asking for their reasoning why someone with no assets was not advised to go bankrupt.

Post again if they say 'beneficial interest'.

tashou17

Thanks everyone based on the response a here. I'm going to suggest he carries on with the IVA payments. He only has another 3 years to go. Seems silly to do bankruptcy now and effectively start the clock again.