What is the difference between an IVA and bankruptcy?
The key difference is control. In an IVA you agree a repayment plan with your creditors through an insolvency practitioner, and you usually keep your home and other assets. In bankruptcy, the Official Receiver or a trustee takes control of your assets and can sell them, but you are usually free of most debts after 12 months.
An IVA asks more of you over a longer time – usually 5 or 6 years of regular payments. Bankruptcy is quicker, but has wider consequences: restrictions on borrowing and being a company director, and possible effects on some jobs.
How an IVA works
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An insolvency practitioner draws up a proposal
Only a licensed insolvency practitioner can set up an IVA. They look at your income, spending, assets and debts and propose what you can afford to pay, and for how long.
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Creditors vote
The IVA is approved if creditors owed at least 75% of the debt (by value, of those who vote) agree. Once approved, it binds all the unsecured creditors included in it.
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You make monthly payments
Interest and charges on the included debts are frozen and those creditors can't take further action against you. The IP's fees are paid out of your payments, and your income is reviewed each year.
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The rest is written off
When you complete the IVA, the unsecured debts that were included and are still unpaid are written off.
There is no legal minimum debt for an IVA, but in practice most insolvency practitioners look for around £7,000–£10,000 or more owed to at least two creditors. Be careful of firms that push IVAs without explaining free alternatives. Read our full IVA guide.
How bankruptcy works
You apply online to an adjudicator at the Insolvency Service. The fee is £680, which you can pay in instalments before you apply. There is no minimum debt if you apply yourself; a creditor must be owed at least £5,000 to petition for your bankruptcy.
- The Official Receiver investigates your finances, and assets can be sold to pay creditors.
- If you have spare income, you may pay some of it to creditors for 3 years under an Income Payments Agreement or Order.
- You are usually discharged after 12 months, and most included debts are written off.
- Student loans, court fines, child maintenance and most debts from fraud are not written off.
See our full bankruptcy guide.
How much debt is written off in an IVA compared with bankruptcy?
In bankruptcy, most of your unsecured debts are written off when you are discharged, though you may lose assets and pay income for up to 3 years first. In an IVA, there is no standard or guaranteed percentage: you pay what you can afford for the agreed term and the remaining balance is written off when the IVA is completed.
How much that leaves unpaid depends on your monthly payment, the length of the IVA, any lump sum or equity release, and the insolvency practitioner's fees, which come out of your payments. Be wary of adverts promising to "write off up to 80%" or similar – the figure for you could be very different.
What happens to your home, car and savings?
| Asset | IVA | Bankruptcy |
|---|---|---|
| Home you own | Usually kept; you may be asked to release equity, often in the final year, or extend the IVA by up to 12 months | Your share of the equity may be used to pay creditors, which can mean selling it |
| Car | Usually kept if it's needed and of reasonable value | May be sold if it's worth more than a reasonable amount |
| Savings | May need to go into the IVA | Can be taken to pay creditors |
| Windfalls (inheritance, large bonus) | Usually have to be paid into the IVA during the term | Usually go to creditors if received before discharge |
| Bank account | Usually unaffected, though a bank you owe money to may close an account | Accounts may be frozen at first; you may need a basic bank account |
Which one suits you?
An IVA may suit you if:
- You own a home with equity you want to keep
- You have regular income and can commit to 5–6 years of payments
- Your job or business would be affected by bankruptcy
- You owe roughly £7,000–£10,000 or more to two or more creditors
Bankruptcy may suit you if:
- You have few assets and no home equity
- You have little or no spare income
- Your debts are too high for a DRO (over £50,000) or you don't meet the other DRO conditions
- You want a quicker end and your job wouldn't be affected
If you have very little spare income and few assets, check whether you qualify for a debt relief order first: it has no fee and debts are written off after 12 months. If you might be able to repay in full over time, compare IVA vs DMP and DMP vs bankruptcy. If creditors are pressing you while you decide, Breathing Space can pause most action for up to 60 days.
Frequently asked questions
Is an IVA better than bankruptcy?
An IVA is often considered better if you own a home with equity, have a steady income you can commit for 5–6 years, or work in a job that bankruptcy would affect. Bankruptcy is often more suitable if you have few assets, little spare income and want a quicker end, as you are usually discharged after 12 months. A free debt adviser can compare both for you.
How much debt is written off in an IVA?
There is no fixed or guaranteed percentage. You pay what you can afford for the length of the IVA, the insolvency practitioner's fees come out of those payments, and whatever is still unpaid at the end of a successful IVA is written off. How much that is depends on your budget, the term, any equity release and what creditors agree.
Do creditors get more from an IVA or from bankruptcy?
Creditors usually agree to an IVA only if they expect to get back more than they would in bankruptcy, and the insolvency practitioner's proposal normally includes a comparison. Actual returns vary a lot in both cases. In bankruptcy, if you have no assets and no spare income, creditors may receive little or nothing.
What happens if my IVA fails?
If you can't keep up your IVA payments, tell your insolvency practitioner straight away – payments can sometimes be reduced or paused. If the IVA fails, the protection ends, interest and collection can restart on what you still owe, and the insolvency practitioner or a creditor may petition for your bankruptcy.
Can I keep my house in an IVA?
Usually, yes. Homeowners in an IVA are normally asked to try to release some equity, typically in the final year, for example by remortgaging. If you can't, the IVA is often extended by up to 12 months instead. In bankruptcy, your share of the equity may be used to pay creditors, which can mean the home is sold.
Which goes on the Insolvency Register, an IVA or bankruptcy?
Both do. An IVA stays on the Individual Insolvency Register until it ends. A bankruptcy stays on the register until you are discharged, or longer if you are given a bankruptcy restrictions order. Both also stay on your credit file for six years.
Get free advice before you decide
Free debt advice charities can tell you whether an IVA, bankruptcy or something else fits your situation – without selling you anything.