What is the difference between an IVA and bankruptcy?

Both an Individual Voluntary Arrangement (IVA) and bankruptcy are formal insolvency procedures under the Insolvency Act 1986. They are both overseen by licensed insolvency practitioners (IPs) and appear on the Insolvency Register.

An IVA is a formal agreement between you and your unsecured creditors, supervised by an IP (your nominee and supervisor). You propose a monthly repayment plan over typically 5–6 years. Creditors holding 75% of the debt by value must vote in favour for it to be approved. Once approved, it binds all unsecured creditors. At the end of the IVA, the remainder of eligible unsecured debts is written off. Your home may need to be remortgaged in the final year. IVAs have upfront and ongoing fees (paid from your payments). They suit people with some regular income and manageable surplus.

Bankruptcy is a court process (or online application). Once declared bankrupt, most unsecured debts are written off immediately. You are usually discharged after 12 months (or less). An Official Receiver or trustee in bankruptcy takes control of your assets (including potential equity in your home) and may also take contributions from your income if above a certain threshold for up to three years. Bankruptcy restrictions (including on borrowing over £500 without disclosing bankruptcy status) last for 12 months. It is typically more appropriate for those with little surplus income and few assets.

Both affect your credit file for six years from the date of the order, regardless of when you are discharged. Seek free advice from StepChange before choosing between them.