IVA/Bankruptcy

davebrown

with my 40k worth of debt I have decided to apply for an IVA as opposed to go the bankruptcy route which I first was planning as I wanted to try and get it all over and done with as soon as I could. Mainly due to reading how ex-bankrupts find it very difficult to obtain mortgages, but also I think the OR would setup a BRO which could potentially go on for 15 years.

What I want to ask is when the application goes through, my bank account will be closed as one of the debts is a loan with my bank. So I was wondering do banks treat people with IVA 's the same as Bankrupts when it comes to trying to open an account. I want to find an account that allows standing orders/direct debits to be set up to so I can carry on paying rent as I have been.

Thanks.

Dave.

Malestrom

Most banks will allow you to open a 'basic' account. This will allow you a cashcard, direct debits and standing orders and possibly, depending on the bank, a debit card. If your current bank is one of your creditors then yes, you will have to open a new account with a different bank.

Why do you think the OR might grant a BRO? Are your debts due to gambling or financial negligence?

davebrown

I believe it would come under negligence. My main debt is with the inland revenue, failure to save up enough to pay off my income tax. I am self employed and got into a situation where I wasnt able to save enough each month towards my income tax, so after a loan to pay off old income tax, and a change in personal situation, i ended up in a circle paying off loans to pay for old income tax and still not being able to save enough for future income tax demands..

Malestrom wrote:

Most banks will allow you to open a 'basic' account. This will allow you a cashcard, direct debits and standing orders and possibly, depending on the bank, a debit card. If your current bank is one of your creditors then yes, you will have to open a new account with a different bank.

Why do you think the OR might grant a BRO? Are your debts due to gambling or financial negligence?

Malestrom

If an IVA were setup, do you think you would be able to meet the payments, meet your living expenses AND still meet your current income tax demands? Have you taken advice on this from CAB, National Debtline, CCCS, PayPlan or similar?

I would think, looking at it from 'outside' that even a BRO isn't that much of a worry. Yes, it could potentially be 15 years but on the other hand, it might only be 2 years, or anywhere in between. Also, a BRO doesn't really exclude you from very much. From the National Debtline site:

A Bankruptcy Restriction Order means you are not allowed to:

Apply for credit over £500 without telling the lender about the order
Become an MP or local councillor
Be a director of a company or form a new company without permission
Be an insolvency practitioner.

Are any of these an issue for you? I would certainly consider contacting one of the above companies, if you haven't done so already, for more indepth and professional advice. My personal knowledge of income tax related debt is poor to say the least.

davebrown

From what I've seen regarding the IR's approaches, If I applied for an IVA, about 50% of the debt will be IR debt, and I'm sure they will not agree to the IVA so I think I would be forced into bankruptcy regardless.

Malestrom

Yes, I dont think that the IR will take too kindly to you trying to write off part of the money you owe them, which is what an IVA does. Bankruptcy may be a better option but I think you should definately take advice on this.

kremmen

The best advice an IVA advisor gave me was to open a new bank account BEFORE setting up the IVA. I did this with Abbey National (as was then) and this allowed me to still function (ie they gave me a debit card).

I have now settled off the IVA and am rebuilding my credit history.

Paul

davebrown

I'm gonna have a meeting with an insolvency firm and see if they think IR will go for the IVA, if so I'll do that. At least if they do I have better chance of rebuilding credit history at a later date.

Rothy

Ok, I'll give you my advice. I used to underwrite credit for a bank.

A bankrupcy and a IVA are both awful in a banker's eyes. I used to judgementally underwrite which meant that my opinion was what drove the decision - I never approved credit for someone with an IVA or simular but I did for ex-bankrupts.

I'd think about 2 factors :
How long the IVA would take to clear
How long you'll be in bankrupcy

As a very vague, opinionised rule of thumb, if the IVA time period is more than half of likely bankrupcy period+6 years then go for bankrupcy.

15 years of bankrupcy means you won't get credit for 21 years unless you get a huge windfall meanwhile and are discharged and that sucks, but you wont have any debt at least. I don't know how much you earn but a 40k IVA may take many many years also.

When you consider you can keep 100% of your income after your bankrupcy ends, if the IVA period is long, then the Bankrupcy becomes attractive.

davebrown

Isnt the average bankrupt discharged after 1 year with it coming off record after 6 ? - I thought because a person has been delcared bankrupt thats why its nigh impossible to obtain a mortgage.
I thought people who had IVA's are more likely to obtain credit/mortgages because at least they have been paying something back for the average of 5 years.

Rothy

Where irresponsability can be demonstrated the Bankrupcy can be extended for up to 15 years Dave.

When everything is settled an IVA is possibly better looking than a Bankrupcy. what I'm saying is that when someone is discharged from bankrupcy they are free of those creditors whereas the IVA means you still have the outgoing. At the end of the day both look bad, but if you can get a small bankrupcy time you lose the repayments making it a big plus.