The UK is facing a debt crisis highlighted by the fact that around 45,000 people filed for bankruptcy in 2005.

Most people seek to avoid bankruptcy at all costs. This is because of the stigmas and disqualifications associated with going bankrupt. The government recently introduced a legitimate alternative to bankruptcy in the form of an IVA.

The rise in the number of people seeking to set up IVAs suggests that it is widely viewed as a good alternative to bankruptcy. Indeed, of the 70,000 insolvencies in 2005, one third were IVAs.

An IVA allows people in serious debt to come to a formal debt re-payment arrangement with their creditors rather than having to face bankruptcy.

IVAs are suitable for people with debts over £15,000 who can afford to pay at least £200 a month. If a creditor agrees to accept the IVA proposed by the debtor then:

• Interest on the loan is frozen
• Legal proceedings are stopped
• The overall debt is reduced

The reason why an IVA is often a good alternative to bankruptcy is that it benefits both the debtor and the creditor.

From a creditor’s perspective, an IVA is a good alternative to bankruptcy because there are no fees or legal proceeding involved with an IVA, unlike with bankruptcy. Furthermore, an IVA offers a greater repayment of the debt than would otherwise be achieved if the debtor were made bankrupt. From the debtor’s point of view, an IVA is a good alternative to bankruptcy because it does not have any stigmas of disqualifications associated with it.

If a debtor keeps up with his or her IVA re-payments he or she will be deemed to be debt free within five years. Other advantages of an IVA that make it a good alternative to bankruptcy include:

• Monthly re-payments are based on what the debtor can actually afford to pay
• In most cases, a debtor can keep his/her car with an IVA
• With an IVA as much as 80% of the debt is written off completely

As a result, an IVA is an excellent alternative to bankruptcy and because IVAs are supported by the government the alternative is a legitimated and regulated one.

Clear Start, the National Consumer Debt Advice Service offers free IVA advice: Alternative to Bankruptcy

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