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Tackling your debts

Can't afford bankruptcy fees - will an IVA be better?

Posted 13 June 2013

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If you can't afford the application fees for bankruptcy, another option is an IVA (Individual Voluntary Arrangement). However, there are many more things to consider before you decide which option is right for you.

If you've really come to the end of the road when it comes to unaffordable debts, you may not know where to turn. But there are solutions that can help, even if you don't think you'll ever be able to pay it all back.

 

There are two main ways to tackle completely unmanageable debts in England and Wales: bankruptcy or an IVA (Individual Voluntary Arrangement). There are fees payable for both - although that shouldn't necessarily be the main reason why you choose one or the other.

 

Follow the links below to find out more:

Individual Voluntary Arrangement (IVA)

Bankruptcy

 

Bankruptcy costs

It costs £700 to apply for bankruptcy in England and Wales. If you receive certain benefits, you may be exempt from the £175 court fee, so you'd only pay £525. Either way, that's a lot of money to pay up front, especially for someone who can barely afford to make ends meet.

You may also be expected to make affordable monthly payments towards your debts for up to three years after your bankruptcy has been agreed.

Depending on your circumstances, there are some charities that can help with the cost of applying for bankruptcy.

If you are worried about being able to afford the bankruptcy fee, you could find out some more information here.

IVA costs

There are fees associated with an IVA, although it works differently to bankruptcy. During an IVA you will make monthly payments, based on what you can afford after you've covered your other priority bills. All your fees will be taken from this affordable monthly payment.

 

In other words, your monthly payment will stay the same regardless of fees charged. There is no big up-front fee, like with bankruptcy.

 

The first monthly payment you make will cover the initial 'assessment fee'. This fee is refunded if your lenders reject your IVA proposal.

 

Once your IVA is agreed, your first few monthly payments will cover the 'Nominee's fee', which covers the legal and admin costs of arranging your IVA. Again, you'll still only pay what you can afford each month.

 

After that, part of each monthly payment you make will go to us in the form of 'supervisor's fees', which cover the cost of looking after your IVA. The rest goes to your lenders.

 

Find out more about the difference between IVA and bankruptcy.

So is an IVA better?

Although many people find the IVA fees easier to handle, you should consider whether bankruptcy is a better option for you in the long run. In bankruptcy, you'll normally be discharged within a year, and payments to your lenders usually only last three years, compared with five on an IVA.

 

On the other hand, if you're a homeowner you may prefer an IVA. Homeowners usually have their home repossessed during bankruptcy. An IVA usually requires homeowners to remortgage to raise cash, but you wouldn't lose your home.

 

Find out how an IVA might affect your mortgage here.

 

And don't forget that both options will damage your credit rating in the medium to long term - which means borrowing more money or getting a bank account could be more difficult.

Have you considered a Debt Relief Order (DRO)?

Another alternative to bankruptcy is a Debt Relief Order (DRO). It's a similar arrangement to bankruptcy, but you'll only qualify if you have less than £50 disposable income each month and your debts are less than £15,000. A DRO freezes your unaffordable unsecured debts for a year, and then writes them off if your situation hasn't improved.

 

Choosing the right way to tackle your debts isn't easy, so talk to our expert debt advisers and find out which is right for you.

by Christine Walsh

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.