Is an IVA more expensive than just going bankrupt?

The overall costs of an IVA are far lower than that of bankruptcy

We receive a lot of calls and emails from the public asking; "Is an IVA more expensive than just going bankrupt?".

Yes, because the fees, costs and expenses of the bankruptcy are high.

To start the bankruptcy process you need to have enough money for the initial deposit of £335. You won't get this back. There may also be a fee of £150, although depending on your circumstances, the court may reduce this amount, or say that you don't have to pay it at all.

To file for bankruptcy there are up front costs.
There are costs and fees incurred by the Official Receiver and from a Licensed Insolvency Practitioner (IP).

An IP will usually be appointed as trustee within four months of the bankruptcy being made. In the meantime the official receiver will act as receiver and manager of the bankrupt's estate and will collect or protect the assets. An insolvency practitioner may be appointed later if, for example, assets come to light or, in the case of a bankruptcy, when assets have been acquired since the date of the bankruptcy order or have increased in value (e.g. an increase in house prices giving equity in a property). A trustee can be appointed even after the bankrupt has obtained their discharge from bankruptcy if there are still assets in the bankruptcy to be dealt with.

If the basis on which a trustee is to be paid is not agreed by a creditors' or liquidation committee or at a meeting of creditors, then the trustee or liquidator will be paid according to the statutory scale shown below:

The realisation scale

On the first £5,000 or part of it 20%
On the next £5,000 or part of it 15%
On the next £90,000 or part of it 10%
On all further sums realised 5%

The distribution scale

On the first £5,000 or part of it 10%
On the next £5,000 or part of it 7.5%
On the next £90,000 or part of it 5%
On all further sums distributed 2.5%

The trustee is entitled to be paid for the work they do. The amount they are paid can be calculated as a percentage of the value of the assets realised or distributed (or both); or on a time-and-rate basis - where an hourly rate is charged for the time spent on dealing with the bankruptcy or liquidation.

When fixing the basis of the trustee's costs, the creditors must have regard to the following:

The complexity (or otherwise) of the case
Any exceptional kind or degree of responsibility which falls on the trustee or liquidator in connection with the bankruptcy or liquidation
How effectively the trustee or liquidator appears to be carrying out, or to have carried out, their duties
The value and nature of the assets which the trustee or liquidator has to deal with.

However an IVA should have not up any upfront costs.

Please note that Money Advice Direct is unique when it comes to the costs of an IVA. We differ from some IVA firms because the insolvency practitioners on our panel do not charge any upfront fees. instead the iva costs and fees are taken from the payments made into the iva.

The actual Licensed Insolvency Practitioner (IP) incurs costs during setting up and running an IVA. These costs are called Nominee IVA Costs and Supervisors IVA Costs. The IVA payments the client makes include the money for the debts as well as the costs of the IVA.

IVA costs explained

Please note that an IVA is an offer to the creditors to pay back part of the debts in full and final settlement. The costs of an IVA reduce the amount that the creditors actually receive. The creditors therefore prefer that the costs of an IVA are as low as possible.

It is there very important to ensure you do not approach an insolvency practitioner where the costs of an IVA are high. We generally advice clients to avoid IVA firms with aggressive advertising campaigns as the costs incurred by them is reflected in the cost of an IVA to the client.

Even though an IVA incurs costs, the overall costs of an IVA are far lower than that of bankruptcy. From the perspective of a bank an IVA is much preferred.

Costs Associated with an IVA

All the costs associated with your IVA are taken from the payments you make in to it. You don’t pay anything extra. We will fully inform you of our proposed fees before you commit yourself to an IVA.

At The UK Insolvency Helpline, we are committed to providing best advice to both the client and ther banks and credit card companies about the costs that may be incurred with an IVA.

If you are considering an IVA and are wondering if just going bankrupt is more expensive than an IVA please complete the following form or telephone freephone 0800 074 6918.

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IVA's

The IVA Guide
Money Advice Direct has put together an IVA Guide based on the enquiries and questions that we receive at our helpline offices.

In the guide we cover such subjects as IVA Approval, early settlment of your IVA, missed IVA payments, IVA failure, additional debt claims and much more.
[click here for IVA Guide]

What is an IVA?
The IVA is an extremely powerful tool enabling you to clear your debt and return to a clean financial bill of health. Visit Money Advice Direct's Guide to Individual Voluntary Arrangements (IVAs).
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Is an IVA more expensive than just going bankrupt?

The overall costs of an IVA are far lower than that of bankruptcy

The realisation scale

The distribution scale

When fixing the basis of the trustee's costs, the creditors must have regard to the following:

However an IVA should have not up any upfront costs.

IVA costs explained

Costs Associated with an IVA

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