Individual Voluntary Arrangements- A New Alternative to Bankruptcy

This May, the Department of Trade and Industry in the UK found that there were 10,091 bankruptcies in the first quarter of 2005. This represents an increase of 24.5% on the corresponding quarter of last year.

Bankruptcy can leave an individual feeling ashamed, depressed and out of control. Furthermore, for many the stigma of bankruptcy can be too much to bear.

However, there may be an alternative to going bankrupt which can also help people in serious debt to make a fresh start.

The Insolvency Act of 1986 introduced The Individual Voluntary Arrangement (also known as an IVA) as an alternative to bankruptcy.

The idea behind the introduction of the Individual Voluntary Arrangement was to enable people facing financial difficulties to come to a formal agreement with their creditors rather than having to face bankruptcy. If an IVA is agreed between the debtor and creditor:

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

An Individual Voluntary Arrangement is generally seen as a more favorable option than bankruptcy from both the debtor's and creditor's perspective. This is because there are no fees or legal proceeding involved with an IVA, unlike with bankruptcy. Furthermore, from the creditor's point of view, an Individual Voluntary Arrangement offers a greater repayment of the debt than would otherwise be achieved if the debtor were made bankrupt.

IVAs represent an exciting new opportunity to those facing serious debt to both avoid bankruptcy and to make a fresh start.

Mike Curry is the head of Clear Start- a free national support service for those facing serious debt. Clear Start offers independent advice on debt management and individual voluntary arrangements. For more information please visit Clear Start.org

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