Factsheet: Individual voluntary arrangements and bankruptcy

An individual voluntary arrangement (IVA) - known as a protected trust deed in Scotland - offers a way of avoiding bankruptcy for people experiencing difficulty repaying unsecured debt.

How IVAs work

Credit card cut up Photograph: Sarah Lee

An IVA can only be arranged through a licensed insolvency practitioner who will put a formal proposal for payment to your creditors. This will be based on a detailed assessment of your financial circumstances and typically involves making a regular monthly payment to your creditors, paying them a lump sum, or a mixture of the two. If you own your own home your creditors may make you agree to pay them an amount equal to the equity you own in the property.

These payments, which are typically made over three to five years, will usually be less than the full amount of the total debts owed. Provided 75% of your creditors, by value, agree to accept the proposal, the IVA becomes legally binding on both you and your creditors. This means they will freeze the interest on your debts and - provided you keep to the terms of the agreement - will accept your payments under the agreement as a full and final settlement of your debts, even if the amount you end up paying is less than the amount you originally owed.

If your creditors don't agree to an IVA, or you fail to keep to its terms, your creditors can apply to make you bankrupt instead.

What IVAs cost

The insolvency practitioner charges a fee for setting up and supervising an IVA. The setting up fee - typically £1,000-£1,500 - may need to be paid upfront. If the IVA goes ahead, an ongoing supervisory fee of around £500 a year is usually funded from the monthly amount paid to your creditors.

Who will know about my IVA?

Details of all current IVAs are kept on the individual insolvency register - a public register maintained by the Insolvency Service. Details of IVAs also appear on your credit file and remain there for six years or until the date the IVA ends if it lasts longer than six years.

Who are IVAs good for?

An IVA could be suitable if you are unable to agree - or keep to - an informal debt management arrangement. An IVA is likely to be unsuitable if you don't have the spare cash necessary to make what can be quite high monthly payments.


Bankruptcy offers people with debts that they cannot pay the opportunity to make a fresh start.

How bankruptcy works

Credit card chip and pin Photograph: Peter Macdiarmid/Getty

You apply to a court to make yourself bankrupt. In England and Wales bankruptcy fees total £700. You pay a £175 fee to the court and £525 to the official receiver. If you have a low income or receive benefits, you may be exempt from the court fee allowing you to go bankrupt for £525. Alternatively, if you owe more than £750 and are unable to agree with your creditor how to repay the debt, it can make you bankrupt. In this case, it would be responsible for paying the fees.

If you are made bankrupt it is possible to get the bankruptcy order annulled if you can get your creditors to agree to what is called a fast track IVA. To do this you would have to show that your creditors would get a better deal from the IVA than they would from your bankruptcy.

Once you have been made bankrupt, the official receiver is entitled to sell any of your assets including your home or any share of a home, as well as other possessions not essential for work or your basic living requirements. The sale proceeds are put towards paying off your debts. The official receiver will also assess your income and outgoings and if it thinks you have any spare cash after meeting your normal household expenditure, you can be asked to make monthly payments towards your debts under an income payment agreement. This can last for a maximum of three years, after which, if no action has been taken, your home will belong to you, unless a charge is placed on your home.

You remain bankrupt for a year after which you are discharged, however much you owe. Any of your debts that remain unpaid after your discharge are written off, although if you have an income payment agreement in place you still have to make the payments until the agreement comes to an end.

What if I can't afford the bankruptcy fees?

There is a cheaper form of bankruptcy called a debt relief order (DRO), which was introduced in 2009 and is aimed at people in severe financial difficulties who have a low income. A DRO costs £90. However, you have to meet certain criteria to be eligible. These are:

• You owe less than £15,000 in unsecured credit debts.
• You are not a homeowner.
• You have no more than £300 of assets (although one car up to the value of £1,000 will be exempt).
• You have less than £50 a month income left over after you've paid your living costs.

Who will know about my bankruptcy?

Details of your bankruptcy are published in the London Gazette and may appear in your local paper. Details of bankruptcy also appear on your credit file and remain there for six years.

Is bankruptcy right for me?

Bankruptcy is not an easy way out. You will have your bank account frozen, you may lose your home and other valued possessions, and you will find it very difficult and/or expensive to borrow money even after the bankruptcy is discharged. You could even find it hard to rent a home from a private landlord who runs a credit check on prospective tenants, as most do.

Bankruptcy can also mean losing your job and will certainly do so if you are an accountant, a member of the Law Society, an estate agent, an insolvency practitioner, a pub licensee, are in the police force or are part of the armed forces. Anyone holding a consumer credit licence will have it automatically revoked on being declared bankrupt.

New rules have been brought in, giving a court the power to make a bankruptcy restriction order against you after your bankruptcy has been discharged. This could happen if the official receiver thinks that your conduct has been 'unfit'. Unfit conduct could include gambling, taking out credit that you knew you couldn't pay back, or failing to co-operate with the official receiver. A bankruptcy restriction order can last from two to 15 years, and will appear on a searchable public register, where your name, address, date of birth and outline of the order will be included.

More information

Free advice on whether an IVA or bankruptcy is suitable is available from the Consumer Credit Counselling Service or the National Debtline. A list of insolvency practitioners licensed to set up IVAs is available from the Insolvency Service.

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