Bankruptcy vs Individual Voluntary Arrangement (IVA)

Two formal insolvency options for individuals who cannot pay their debts: bankruptcy (automatic write-off with restrictions) vs IVA (negotiated repayment plan over 5 years). Debt Relief Orders (DROs) are an additional option for low-income debtors.

Overview

When debt has become unmanageable, two formal insolvency processes are available to individuals in England and Wales: bankruptcy and an Individual Voluntary Arrangement (IVA). Both provide legal protection from creditors and ultimately result in debt write-off, but through very different mechanisms. A third option — the Debt Relief Order (DRO) — is available for those with very low income and minimal assets (debts under £30,000, assets under £2,000, surplus income under £75/month). This comparison focuses on bankruptcy vs IVA; DRO is noted where relevant.

Side-by-Side Comparison

Bankruptcy

Cost: £680 to petition yourself; creditor bankruptcy petition is free to the debtor but initiated by the creditor

Time: Discharge after 12 months; Income Payments Agreement may continue for 3 years

Pros

Automatic discharge after 12 months — debts written off and restrictions lifted
Clean break — no ongoing payment plan after discharge (except Income Payments Arrangements for 3 years if income is sufficient)
Relatively simple process — can petition yourself online via GOV.UK (fee: £680)
Unsecured creditors cannot pursue you during the process

Cons

Trustee can sell assets — including your interest in the family home (after a year's grace period)
Bankruptcy restrictions (BROs) — cannot be a company director, cannot obtain credit over £500, must disclose to business partners
Bankruptcy is a matter of public record — appears on the Individual Insolvency Register
Certain debts survive bankruptcy — student loans, fines, child maintenance, debts incurred by fraud
Some professions (solicitors, accountants, insolvency practitioners, certain regulated roles) are disqualified by bankruptcy

Best For

Individuals with no assets (or assets worth less than the debts) who want a clean break, have significant unsecured debt they cannot service, and are not in professions where bankruptcy is disqualifying.

Individual Voluntary Arrangement (IVA)

Cost: IP fees £3,000–£8,000; the fee is taken from monthly payments, not paid upfront

Time: 5 years (occasionally extended to 6 years)

Pros

Homeowners can usually keep their home — no automatic sale of property
Not a matter of public court record in the same way as bankruptcy
Creditors are bound by a majority vote — if 75% in value approve, all unsecured creditors are bound
No bankruptcy restrictions on being a company director or obtaining credit (during the IVA, restrictions are contractual rather than statutory)
Flexibility — some IVAs allow for a lump sum settlement

Cons

Requires regular income for 5 years — not suitable if income is low or irregular
Insolvency Practitioner fees are high: £3,000–£8,000 typically, taken from contributions
If the IVA fails, the likely outcome is bankruptcy — the debtor is in the same position but having paid fees for years
Not suitable for all debt types — student loans, child maintenance, and secured debts cannot be included
Appears on the Individual Insolvency Register for 6 years

Best For

Homeowners with equity they wish to protect, individuals with regular income, and those with debts (particularly over £30,000) who can sustain 5 years of monthly contributions.

Key Differences

AspectBankruptcyIndividual Voluntary Arrangement (IVA)

AssetsTrustee may sell non-exempt assets (including home after 1 year grace period)Home usually protected — IVA does not require sale of assets unless IVA specifically provides for it

Duration12 months until discharge; IPA can continue for 3 years5 years of monthly payments

Income requiredNone — but an Income Payments Agreement applies if surplus income > £20/monthRegular disposable income required throughout the 5 years

Professional restrictionsCannot be company director, obtain credit over £500, or hold certain regulated roles during bankruptcyNo statutory restrictions on directorships or credit (but IVA may include contractual restrictions)

Cost£680 to self-petitionIP fees £3,000–£8,000 from contributions

DRO (for comparison)N/ADRO: £90 fee, debts under £30,000, no assets — write-off after 12 months. Best for those with low income, minimal assets, and smaller debts.

Our Recommendation

Bankruptcy gives the fastest clean break and is most suitable for those with no significant assets. IVAs suit those with regular income who own a home or face professional restrictions from bankruptcy. A DRO is the most accessible solution for low-income renters with modest debts. Always take free debt advice before choosing — contact National Debtline (0808 808 4000) or StepChange. Beware of fee-charging IVA firms that take upfront fees before the IVA is approved by creditors.

Related Guides

Official Resources

Insolvency Service: Debt options →National Debtline — IVA vs Bankruptcy →StepChange: Debt solutions →