I’ve never been bankrupt or had an IVA. But I’ve spoken to dozens of people who have, and I’ve researched this extensively because I came close to needing one in 2018.

If you’re drowning in debt and considering bankruptcy or an IVA, this decision will affect your life for years.

This guide explains both options clearly, compares them side-by-side, and helps you work out which (if either) is right for you.

IVA or bankruptcy – which should you choose?

Quick answer:

• Choose bankruptcy if: You can’t afford any monthly payments, don’t own a home, and want the fastest route to debt freedom
• Choose an IVA if: You can afford monthly payments, own a home you want to keep, and your job would be affected by bankruptcy
• Consider neither if: You qualify for a Debt Relief Order (DRO) – it’s cheaper and often better

This guide compares IVA or bankruptcy options in detail so you can make the right choice for your situation.

IVA or Bankruptcy: Quick Decision Guide

Both are serious. Both stay on your credit file for 6 years. Both should be a last resort.

What Is Bankruptcy?

Bankruptcy is a legal process where:

1. You apply to court (or a creditor forces you)
2. You’re declared bankrupt
3. Your assets are sold to pay creditors
4. Remaining debts are written off after 12 months

It’s the most serious debt solution in the UK.

How Bankruptcy Works

Step 1: Apply

• Apply online at gov.uk
• Pay £680 fee (upfront)
• Complete forms about your finances

Step 2: Adjudicator Reviews

• They check your application
• Usually decided within days
• You’re declared bankrupt

Step 3: Official Receiver Takes Control

• Government official appointed
• They sell your assets
• They distribute money to creditors

Step 4: Restrictions Apply

• Last 12 months
• Lots of rules (see below)
• Can be extended if you don’t cooperate

Step 5: Discharged After 12 Months

• Most debts written off
• Restrictions lifted
• Fresh start

Step 6: Credit File Impact

• Stays on file for 6 years from bankruptcy date
• Serious impact on credit score

What Happens to Your Assets

Assets that CAN be taken:

• Your home (if you have equity)
• Vehicles worth over £2,000
• Savings
• Investments
• Valuable items (jewellery, antiques, etc.)
• Business assets
• Some pension pots

Assets you CAN keep:

• Essential household items (furniture, clothes, bedding)
• Work tools up to £1,000
• Vehicle worth under £2,000 (if needed for work/essential travel)
• Most pension pots (if approved scheme)

Your home: If you own your home:

• Official Receiver can force sale
• They take your equity share
• Your partner’s share is protected
• If little/no equity, they might not sell

If you rent:

• Bankruptcy doesn’t directly affect tenancy
• But landlord might evict if they find out

Restrictions During Bankruptcy

For 12 months, you cannot:

• Get credit over £500 without disclosing bankruptcy
• Be a company director
• Work in certain professions (solicitor, accountant, etc.)
• Create or run a limited company

You must:

• Tell the Official Receiver about any new assets
• Cooperate fully
• Hand over post from creditors
• Declare bankruptcy if applying for credit

Cost of Bankruptcy

Upfront:

• £680 fee (must pay before applying)
• No payment plans available
• If you can’t afford it, bankruptcy might not be viable

Ongoing:

• Official Receiver might ask for income contributions if you earn over a certain amount
• Usually last 3 years
• Based on disposable income

Who Qualifies for Bankruptcy

You can apply for bankruptcy if:

• You live in England, Wales, or Northern Ireland
• You cannot pay your debts
• You owe at least £5,000 (though no strict minimum)

No minimum debt level, but usually used for larger debts (£10,000+).

Debts Covered by Bankruptcy

Most debts are written off:

• Credit cards
• Loans
• Overdrafts
• Catalogues
• Store cards
• Energy bills
• Council tax arrears
• Rent arrears
• Payday loans

Some debts are NOT written off:

• Court fines
• Child maintenance arrears
• Student loans
• Social fund loans
• Debts obtained through fraud

Pros and Cons of Bankruptcy

Pros:

✅ Debts written off after 12 months

✅ Fresh start

✅ Creditors can’t chase you

✅ No monthly payments (unless income high enough)

✅ Relatively quick process

Cons:

❌ £680 upfront cost

❌ Can lose your home

❌ Can lose valuable possessions

❌ Serious credit impact (6 years)

❌ Public record (anyone can search)

❌ Affects certain jobs

❌ Restrictions for 12 months

❌ Social stigma

What Is an IVA (Individual Voluntary Arrangement)?

An IVA is a formal agreement between you and your creditors to:

1. Pay what you can afford each month for 5-6 years
2. Remaining debt is written off at the end

It’s legally binding. You must stick to it.

How an IVA Works

Step 1: Get Advice

• Contact IVA provider (insolvency practitioner)
• They assess your finances
• Check if IVA is suitable

Step 2: Proposal Created

• They draft a proposal showing:
  • Your debts
  • Your income and expenses
  • What you can afford to pay monthly
  • How long it will last

Step 3: Creditors Vote

• Proposal sent to all creditors
• They vote to accept or reject
• Need 75% (by debt value) to accept

Step 4: IVA Approved

• If accepted, IVA starts
• You make monthly payments
• Creditors can’t chase you
• Interest frozen

Step 5: Complete the Term

• Usually 5-6 years of payments
• Annual reviews (income changes can affect payments)
• Might need to release equity from home in year 5

Step 6: Completion

• After final payment, remaining debt written off
• Certificate of completion issued
• Fresh start (but credit impact remains 6 years from start date)

What You Pay in an IVA

Monthly payments: Based on your disposable income after essential expenses.

Example:

• Income: £1,800/month
• Essential expenses: £1,500/month
• Disposable income: £300/month
• IVA payment: £300/month

Total paid: £300/month × 60 months = £18,000

If you owed £40,000:

• You pay: £18,000
• Written off: £22,000 (55%)

Typical write-off: 25-75% of debt (varies hugely).

IVA Fees

IVA companies charge fees, but these come OUT of your monthly payments.

Typical fees:

• Setup fee: £2,000-3,000
• Annual fees: £1,000-2,000
• Total over 5 years: £5,000-7,000

You don’t pay extra. Fees are deducted from your payments before creditors get anything.

Example:

• Your payment: £200/month
• IVA fees: £100 first year, £50/month ongoing
• Creditors get: £150/month after year 1

Assets in an IVA

You usually keep:

• Your home (but might need to release equity in year 5)
• Your car
• Essential possessions
• Pension

Home equity: In year 5, you might be asked to:

• Remortgage to release equity
• Or extend IVA by 12 months

If you can’t remortgage or don’t have equity, you extend by 12 months.

IVA Restrictions

During the IVA, you cannot:

• Get credit over £500 without telling IVA supervisor
• Leave the country without permission (sometimes)
• Miss payments (leads to failure)

You must:

• Make all payments on time
• Declare income increases (payments might go up)
• Cooperate with annual reviews
• Notify them of windfalls (inheritance, bonus, etc.)

Who Qualifies for an IVA

Typical criteria:

• Debt of £6,000+
• Two or more separate creditors
• Able to afford minimum monthly payments (usually £80-100+)
• Live in England, Wales, or Northern Ireland
• Unsecured debts only

Each IVA provider has different criteria.

Debts Covered by an IVA

Most unsecured debts:

• Credit cards
• Loans
• Overdrafts
• Store cards
• Payday loans
• Catalogues
• Council tax arrears (sometimes)
• Benefit overpayments (sometimes)

NOT covered:

• Secured debts (mortgage, secured loans)
• Court fines
• Child maintenance
• Student loans

Pros and Cons of IVA

Pros:

✅ Write off significant debt (25-75%)

✅ Fixed affordable monthly payments

✅ Keep your home (usually)

✅ Keep your car

✅ Creditors can’t chase you

✅ Interest and charges frozen

✅ More private than bankruptcy

Cons:

❌ Lasts 5-6 years

❌ Serious credit impact (6 years)

❌ High fees (£5,000-7,000)

❌ Must make every payment

❌ Income increases = payment increases

❌ Might need to release home equity

❌ Can fail if you don’t keep up payments

❌ Not suitable for small debts

IVA or Bankruptcy: Side-by-Side Comparison

Duration

• Bankruptcy: 12 months restrictions, but credit impact 6 years
• IVA: 5-6 years of payments, credit impact 6 years
• Winner: Bankruptcy (shorter)

Cost

• Bankruptcy: £680 upfront
• IVA: £5,000-7,000 in fees
• Winner: Bankruptcy (cheaper)

Assets

• Bankruptcy: Can lose home, car, valuables
• IVA: Usually keep home and car
• Winner: IVA (keep more)

Privacy

• Bankruptcy: Public record, anyone can search
• IVA: More private, not easily searchable
• Winner: IVA (more private)

Job Impact

• Bankruptcy: Affects many professions
• IVA: Rarely affects jobs
• Winner: IVA (less impact)

Monthly Payments

• Bankruptcy: Only if income high enough
• IVA: Must pay every month for 5-6 years
• Winner: Bankruptcy (might pay nothing)

Debt Written Off

• Bankruptcy: All (except excluded debts)
• IVA: 25-75% typically
• Winner: Bankruptcy (writes off more)

Success Rate

• Bankruptcy: Cannot fail (once bankrupt, you’re bankrupt)
• IVA: 30-40% fail before completion
• Winner: Bankruptcy (guaranteed outcome)

Which Should You Choose?

Choose Bankruptcy If:

• You cannot afford ANY monthly payments
• You don’t own a home
• You have few valuable assets
• You don’t work in restricted professions
• You can afford the £680 fee
• You want the quickest route to debt freedom
• You can handle the public nature

Choose an IVA If:

• You can afford regular monthly payments
• You own a home you want to keep
• You have valuable assets you want to keep
• Your job would be affected by bankruptcy
• You want more privacy
• You have large debts (£10,000+)
• You’re willing to commit for 5-6 years

Neither Might Be Right If:

• Your debts are small (under £5,000)
• You can pay off debts within 1-2 years with budgeting
• You’re managing payments with negotiated reductions
• You qualify for a Debt Relief Order (better option)

Alternative: Debt Relief Order (DRO)

Before choosing bankruptcy or IVA, consider a DRO:

Qualifications:

• Debt under £30,000
• Disposable income under £75/month
• Assets under £2,000
• Live in England, Wales, or Northern Ireland

Benefits:

• Only £90 fee
• Debts written off after 12 months
• No payments required
• Keep your assets
• Less serious than bankruptcy

If you qualify for a DRO, it’s usually better than bankruptcy or IVA.

[Link to your main debt guide for DRO details]

How to Decide

Step 1: Get Free Advice

Contact:

• StepChange (0800 138 1111)
• National Debtline (0808 808 4000)
• Citizens Advice

They’ll assess your situation and recommend the best option.

DON’T pay for advice. These services are free.

Step 2: Consider Your Priorities

What matters most to you?

• Keeping your home → IVA
• Quickest debt freedom → Bankruptcy
• Keeping your job → IVA (if profession affected by bankruptcy)
• Lowest cost → Bankruptcy
• Privacy → IVA

Step 3: Work Out What You Can Afford

Can you afford monthly payments?

• Yes → IVA might work
• No → Bankruptcy or DRO

Do you have £680 available?

• No → Can’t do bankruptcy (unless you can save it)

Step 4: Consider Long-Term Impact

Both affect credit for 6 years.

After that:

• Bankruptcy: Searches show it for anyone looking
• IVA: Harder to find (not public register)

Think about:

• Future mortgage applications
• Future job applications
• Personal pride/stigma

Step 5: Check Eligibility for DRO

Could you qualify for a DRO instead?

• Much cheaper
• Same outcome (debts written off)
• Fewer consequences

Get advice to check.

Common Mistakes

Mistake 1: Choosing Without Advice

Both are serious. Get free professional advice first.

Mistake 2: Choosing IVA for Small Debts

IVAs have huge fees. For debts under £8,000, other options are usually better.

Mistake 3: Starting an IVA You Can’t Afford

30-40% fail. If you can’t afford payments, don’t start.

Mistake 4: Rushing Into Bankruptcy

Once bankrupt, you can’t undo it. Make sure it’s right first.

Mistake 5: Using Dodgy IVA Companies

Some IVA companies are aggressive salespeople pushing IVAs when other options are better.

Only use:

• FCA-regulated firms
• Free debt charities (StepChange, etc.)
• Insolvency practitioners

Mistake 6: Not Considering DRO

Many people qualify for DRO but choose bankruptcy or IVA instead.

Check DRO eligibility first.

What Happens If You Don’t Do Either?

If you do nothing:

• Interest keeps adding
• Creditors chase you
• CCJs granted
• Bailiffs sent
• Stress and anxiety
• Problem gets worse

But: If your situation isn’t that serious, you might not need bankruptcy or IVA.

Consider:

• Negotiating with creditors [link to post]
• Debt Management Plan (informal, cheaper)
• Debt consolidation [link to post]
• Breathing Space (60 days protection)

IVA or Bankruptcy: Real-Life Examples

Example 1: Sarah – Bankruptcy

Situation:

• £28,000 debt (credit cards, loans)
• Unemployed
• Renting
• No assets
• Cannot afford any payments

Why bankruptcy:

• Can’t afford IVA payments
• Doesn’t own home (nothing to lose)
• Wants fresh start quickly
• Can afford £680 fee

Outcome:

• Paid £680, declared bankrupt
• Debts written off after 12 months
• No payments required
• 6 years credit impact but manageable

Example 2: James – IVA

Situation:

• £45,000 debt (credit cards, loans, overdraft)
• Homeowner with equity
• Earns £28,000/year
• Can afford £250/month

Why IVA:

• Wants to keep his home
• Can afford monthly payments
• Wants privacy (works in finance)
• Debt too large for other options

Outcome:

• Pays £250/month for 6 years (£18,000 total)
• £27,000 written off
• Kept his home
• 6 years credit impact

Example 3: Emma – DRO

Situation:

• £12,000 debt
• On benefits (£900/month)
• Renting
• No assets
• After essentials, £40/month left

Why DRO:

• Qualifies (debt under £30k, income under £75 disposable)
• Only costs £90
• Debts written off after 12 months
• Less serious than bankruptcy

Outcome:

• Paid £90, got DRO
• Debts written off after 12 months
• No payments required
• Best option for her situation

Final Thoughts

Bankruptcy and IVAs are both serious debt solutions.

Key points:

• Both stay on credit file 6 years
• Both write off debt
• Bankruptcy is quicker but you lose assets
• IVA takes longer but you keep more
• DRO might be better if you qualify
• Get FREE advice before deciding

Don’t rush. Get proper advice.

Contact StepChange, National Debtline, or Citizens Advice. They’ll assess your full situation and recommend the best option.

Remember:

• These are last resorts
• Consider all alternatives first
• Make sure you choose the right one
• Get free professional advice

Both bankruptcy and IVAs can give you a fresh start. But they’re serious decisions that will affect your life for years.

Choose carefully.

IVA or Bankruptcy FAQs

1. Which is worse: IVA or bankruptcy?
Both stay on your credit file for 6 years, so neither is objectively “worse”. Bankruptcy is more public and you lose assets, but it’s over in 12 months. IVAs are more private and you keep assets, but last 5-6 years. Choose based on your specific situation, not which sounds “better”.

2. Is it better to get an IVA or go bankrupt?
It depends entirely on your circumstances. Choose bankruptcy if you can’t afford monthly payments and don’t own assets. Choose an IVA if you can afford payments, own a home, or your job would be affected by bankruptcy. Get free advice from StepChange or National Debtline to work out which suits you.

3. Can I get a mortgage after IVA or bankruptcy?
Yes, eventually. You’ll struggle for 6 years whilst it’s on your credit file. After 6 years, it drops off and specialist lenders will consider you. Bankruptcy appears on public searches forever, which some mortgage lenders check. IVAs are harder to find after 6 years.

4. Which is cheaper: IVA or bankruptcy?
Bankruptcy costs £680 upfront but nothing else (unless you have income contributions). IVAs cost £5,000-7,000 in fees over 5-6 years. However, in an IVA you keep your home. In bankruptcy, it can be sold. The “cheaper” option depends on your assets.

5. How do I decide between IVA or bankruptcy?
Contact free debt advice services (StepChange: 0800 138 1111, National Debtline: 0808 808 4000). They’ll assess your complete financial situation and recommend the best option. Don’t decide without professional advice – it’s too important.

Get Free Advice:

• StepChange: 0800 138 1111 / www.stepchange.org
• National Debtline: 0808 808 4000 / www.nationaldebtline.org
• Citizens Advice: www.citizensadvice.org.uk
• MoneyHelper: 0800 138 7777 / www.moneyhelper.org.uk

Last updated: November 2025