Bankruptcey

[MKG]

Hi
A friend of mine may have to go into bankruptcey is it better to go for an IVA? also is it worse being made bankrupt by someone else?

cheers
mkg

[Richard1966]

It depends.

An IVA might be more appropriate if he runs his own business and needs to keep it running, or if he owns his house an IVA might (but only might) mean that he doesn't lose it.

It makes no difference if he makes himself bankrupt or someone else does it, however its really only the Inland revenue that regularly do this as for nearly all other creditors they are more likely to lose money if you go bankrupt so there is no incentive for them.

It will cost him £505 though.

[themas]

IVAs usually last at least 5 years, & you have to be able to pay a fairly substantial sum each month (amount depends on the total size of debts, & on attitude of creditors) over that period. If you own a house, you usually have to re-mortgage it towards the end of the 5 years to raise more money for the creditors.

If you go bankrupt it is over in 1 year, unless you are assessed as having surplus income above £100 per month, in which case you have to pay a % of the surplus (starting at 50% & increasing to a maximum of about 75% depending on the size of the surplus) for 3 years. (In an IVA all your assessed surplus is taken.)

But you may lose your house in bankruptcy. This depends on how much equity there is in the house, & whether you can get a third party to buy out the Official Receiver's interest. Look at Insolvency Service website & their booklet on what happens to houses in bankruptcy.

If you run a business you may be able to continue to do so while bankrupt (keeping it to the same name as you traded in before bankruptcy), but there are complications if you are in partnership. Also, you cannot be a company director. If this is the situation you can get advice from Business Debtline (see website).

If you have a car & it is not essential for work purposes then you may lose it in bankruptcy - depends on its value.