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Debt / Insolvency

Updated 2026-04-09

Individual Voluntary Arrangement (IVA) vs Bankruptcy

Comparing two formal insolvency processes for individuals who cannot repay their debts.

Overview

When personal debts are unmanageable and informal arrangements have failed, two formal insolvency options are available under the Insolvency Act 1986: an Individual Voluntary Arrangement (IVA) and Bankruptcy. Both processes write off remaining debts at the end, but the eligibility criteria, costs, impact on assets, and long-term consequences differ significantly.

Side-by-Side Comparison

Individual Voluntary Arrangement (IVA)

Cost: IP fees: £3,000–£8,000 (taken from monthly contributions); no separate application fee

Time: Usually 5 years (occasionally 6 if equity release required in a property)

Pros

You keep your home (subject to potential equity release in year 5)
Creditors must accept the IVA if 75% by value vote in favour — dissenting creditors are bound
You remain in control of your business and assets (within the IVA terms)
Less stigma than bankruptcy — IVA does not appear in local press

Cons

Strict monthly payments — failure to maintain payments can lead to IVA failure and bankruptcy
Fees are high — the IP's costs are typically £3,000–£8,000 taken from your monthly payments
Must have a regular income to fund the monthly payments
Appears on the Insolvency Register for 3 months after completion; on your credit file for 6 years

Best For

Homeowners with equity, self-employed people or business owners, or those with a regular income who can afford monthly payments and want to avoid bankruptcy.

Bankruptcy

Cost: Debtor application fee: £680 (consisting of £130 adjudicator fee + £550 Official Receiver's deposit)

Time: Discharge after 12 months; Trustee may deal with assets for 3 years

Pros

Discharge after 12 months — clean break from unsecured debts
Simpler process — if applying as a debtor, you apply online and pay a fee
No ongoing monthly payments (unless a Bankruptcy Income Payment Order is made)
Creditor harassment must stop on the making of the bankruptcy order

Cons

Your assets (including equity in your home) vest in the Trustee — your home may have to be sold
Restrictions on certain professions (e.g. solicitors, accountants, company directors are disqualified)
Bankruptcy appears on the Insolvency Register permanently (though practically it fades after 6 years on credit files)
A Bankruptcy Restrictions Order can extend restrictions for 2–15 years for culpable conduct

Best For

Those with no significant assets, particularly non-homeowners, who want a quick clean break from debt, or whose debts are so large that an IVA is not viable.

Key Differences

AspectIndividual Voluntary Arrangement (IVA)Bankruptcy

Impact on homeUsually retained — but equity release clause in year 5 is commonTrustee may sell the family home if there is equity

Duration of restrictionsPayments over 5 years; off credit file after 6 yearsDischarge after 12 months; off credit file after 6 years

Monthly paymentsRequired for 5 years (fixed amount)Only if Bankruptcy Income Payment Order made (3 years)

Professional restrictionsFewer — depends on professionSignificant — company directors, legal and financial professionals affected

Debt write-offBalance written off after 5-year paymentsAll unsecured debts written off at discharge (12 months)

Creditor approval neededYes — 75% by value must vote in favourNo — court or adjudicator makes the order

Our Recommendation

Seek free debt advice from National Debtline (0808 808 4000), StepChange, or Citizens Advice before choosing either route. The right answer depends on: whether you own a home with equity (IVA better preserves it), your income (IVA requires regular payments), your profession (bankruptcy has more severe professional restrictions), and how quickly you want a clean break. Never pay upfront for IVA advice — reputable IPs take their fees from the arrangement itself.