Paying off debt is never easy, and when evaluating debt management solutions, you’ll naturally consider the costs involved. It’s natural.
However, even though there’s quite a big difference in the cost of bankruptcy and the cost of an IVA, you should consider the practical implications of each rather than basing your decision solely on the cost involved.
Let’s look at each one in turn.
Typical Bankruptcy Costs
To go bankrupt, you’ll need to find a lump sum that’s paid partly to your local court and partly to the Insolvency Service. The total of these two fees is around £750. If you’re on benefits, seek professional advice; you might be able to get this fee reduced.
You may also pay fees for advice or guidance during the bankruptcy process.
Bankruptcy seems like great value, but remember: there is a huge downside to bankruptcy in that your assets become vulnerable. Your house and vehicle could be repossessed and sold to pay your debts. Additionally, you’ll be barred from acting as a company director or doing certain jobs.
On the plus side, you’ll be completely debt free within just one year.
Typical IVA Costs
The fees associated with an IVA are higher. You can expect to pay something like £1,000 to set up your agreement, plus additional fees through the course of the IVA. In total, people on IVAs generally pay around£3,000 to £5,000 in fees.
Unlike bankruptcy, IVA fees aren’t payable upfront. They’re incorporated into your repayment plan and it is therefore your creditors that suffer this rather than you.
Although an IVA is considerably more expensive than bankruptcy on paper, bear in mind the three big advantages of an IVA:
- Your details won’t be published in the press.
- You’re unlikely to encounter too many problems with your employment in the future.
- You won’t lose your home.
If you continue to struggle with debt, the mounting burden of interest and penalty charges will dwarf the fees associated with an IVA or bankruptcy. No matter which method you choose, you must act quickly so that you can tackle the debt and get it under control so that the amount you owe begins to decrease.
For some people, bankruptcy is the right choice because it allows them to become debt-free very quickly. For others, keeping the family home is the most important consideration, so an IVA clearly wins out.
To ensure you’re making the right choice, speak to licensed insolvency practitioners about your options. Get professional help so that you can weigh up the benefits of both and choose the right debt management solution for your circumstances. Varden Nuttall Limited IVA advisors are there to help you make the right choice.