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Bankruptcy versus IVA: FREQUENTLY ASKED QUESTIONS

Q: What is an Individual Voluntary Arrangement ?IVA??

A: An IVA is a legally binding contract between yourself and your creditors, which will generally last for 5 years. You will put forward an offer as settlement of your debts to your creditors based upon the following:

1. A fixed monthly contribution based upon your available disposable income

2. If you own your property you will be required to take reasonable steps, (by way of remortgage), to make a proportion of the equity available to your creditors.

3. If you are unable to remortgage at the end of the term, you will NOT be required to sell your property

4. If the IVA is a sole proposal you are only obliged to realise your share of equity in a jointly owned property, ensuring your partner?s share remains unaffected.

Provided 75% of those creditors who vote are in favour of the proposal the IVA is accepted. As long you keep to the terms of your IVA once it has been approved, all of your creditors who were entitled to vote are legally bound.

This means that:

5. Your creditors can not bring further action against you

6. Your creditors can not change their minds at a later date
From the date of approval of your Arrangement all interest and charges are frozen. Unlike bankruptcy there is no advertisement of the IVA in a local paper. Your professional status or ability to hold public office will not be affected. On completion of the IVA term, provided you have adhered to the terms of the Arrangement, the balance of your debts is written off. On the basis of the information which you have provided this would appear an appropriate solution to your financial problems.

Q: What is bankruptcy?

A: Bankruptcy is a serious matter. You will have to give up possessions of value and your interest in your home. It will almost certainly involve the closure of any business you run and the dismissal of your employees. Bankruptcy may also impose certain restrictions on you. Subject to certain exemptions, bankruptcy means that the Official Receiver will take control of all your assets on the making of a bankruptcy order. He or she, or any insolvency practitioner who is appointed trustee, will dispose of them and use the money to pay the fees, costs and expenses of the bankruptcy and then your creditors. Assets you would be allowed to keep include:

7. Ordinary household contents;

8. A modest motor vehicle;

9. Tools required for your trade

The trustee may apply to the court for an order restoring property to him or her if you disposed of it in a way which was unfair to your creditors (for example, if before bankruptcy you had transferred property to a relative for less than it is worth). If you have a surplus income above the needs of yourself and your dependants, you will be expected to make contributions to your creditors during the bankruptcy, and may be ordered to do so by the court. If you come into any money during the bankruptcy, such an inheritance or a lottery win, that too will be available to your creditors. In addition your bankruptcy would be advertised in a local paper. Generally you will be automatically discharged from bankruptcy after 1 year although you may be required to pay into the bankruptcy for 3 years.

Q: What are the main differences between an IVA and bankruptcy?

10. Assets

In bankruptcy you loose control of your assets as these vest in the Trustee. The Trustee will then dispose of these assets and use the funds to pay their fees and disbursements and distribute the remaining funds among your creditors. In an IVA you make an offer to your creditors. This should be your best offer and so may include the disposal of excessive assets for the benefit of your creditors. However it is possible to specifically exclude assets from the Arrangement such as life assurance policies, pensions, motorcars etc. In bankruptcy your home will vest in the trustee whereas in an IVA you will be expected to use your best endeavours to realise, by way of re-mortgage, the equity you have in your property. You will not be expected to sell your home and will not loose it.

11. Duration

An IVA will generally last for 5 years whereas it is normal to get a discharge from bankruptcy after 1 year with payments to the bankruptcy lasting three years.

12. Publicity

Your bankruptcy is advertised in a local newspaper which is not the case in an IVA

Q. Do I have to be in full time employment?

A: No. You need to have a regular source of income, from which once you have paid your household bills, you have a surplus income.

Q. Do I have to tell my partner?

A: An IVA will generally last for 5 years and if you own a property you will be expected to try to realise your share of the equity at the end of the term. In addition the information, which is presented to your creditors needs to show the total household income, although an allowance is given to your partner which is calculated based upon the level of their income and household expenditure. You will almost certainly, then, have to tell Read more…

After working for months the idea of a family vacation can seem like the ideal reward. A week or two in a sunny climate in the middle of a cold and snowy winter is the icing on their yearly cake. Vacations are usually costly though and if your job is set a family budget, you?ll want to get the most out of each dollar you?ve allocated to the vacation fund.

There are many important factors to consider if you?ve decided to set up a financial plan that includes money for vacations. It isn?t enough to just take a percentage of each paycheck and put it in a separate bank account that you?ll turn to at the end of the year. With the proper planning techniques in place when you set a family budget you?ll be able to execute a trip that will be unforgettable.

One important consideration is timing. Most people want to venture out on a holiday at the same time each year. The travel industry refers to these times as peak periods and they generally fall in December, March and again during the summer months. The reason for this is because more people are tempted to take off on a trip when their children aren?t in school. The travel industry knows this and prices are considerably higher during these times.

Although school work is most important, planning a trip during a non-peak time and preparing beforehand might be the most economical answer. Research is fundamental when planning any trip. There is an abundance of information on the internet that can give you an idea of the total cost you will be facing for your trip.

If you do decide to travel during a non-peak time and you have children enrolled in school, there are steps you can take to assist them with their studies. Talk to their teachers and have them assign homework for the trip. This is a wonderful method of not only keeping the children up to par Read more…

The UK is facing a debt crisis highlighted by the fact that around 45,000 people filed for bankruptcy in 2005.

Most people seek to avoid bankruptcy at all costs. This is because of the stigmas and disqualifications associated with going bankrupt. The government recently introduced a legitimate alternative to bankruptcy in the form of an IVA.

The rise in the number of people seeking to set up IVAs suggests that it is widely viewed as a good alternative to bankruptcy. Indeed, of the 70,000 insolvencies in 2005, one third were IVAs.

An IVA allows people in serious debt to come to a formal debt re-payment arrangement with their creditors rather than having to face bankruptcy.

IVAs are suitable for people with debts over ?15,000 who can afford to pay at least ?200 a month.
If a creditor agrees to accept the IVA proposed by the debtor then:

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

The reason why an IVA is often a good alternative to bankruptcy is that it benefits both the debtor and the creditor.

From a creditor?s perspective, an IVA is a good alternative to bankruptcy because there are no fees or legal proceeding involved with an IVA, unlike with bankruptcy.
Furthermore, an IVA offers a greater repayment of the debt than would otherwise be achieved if the Read more…

These days, everyone?s lives are burdened with paperwork. With newspapers, magazines, bills, junk mail, and who-knows-what taking up space in their day, few people have time to look at every piece of paper that comes their way. Unfortunately, it?s becoming more and more necessary to carefully examine bills and contracts, as various penalties are finding their way into the fine print of credit card bills, home equity loan and mortgage contracts. It truly pays to take the time to read the fine print in these documents.

Up to one third of major credit card issuers now include a ?universal default clause? in their credit card terms. The UDC allows the credit card company to raise the interest rate on the account if the cardholder pays his or her bills late. This can apply even if the credit card bill is paid on time! It is important to find out if your credit card terms include a UDC, as your interest rate could be affected by whether or not you pay your telephone bill on time. This is just one of many ways that credit card companies are increasing their profits, but it isn?t one that they?re willing to advertise. When a letter comes in the mail from your credit card company that says ?change in your credit card terms? or something like it, make sure that you read it. Failure to do so could raise the interest rate on your credit card substantially.

Another ?fine print? issue that has been turning up recently is the prepayment penalty that is now being attached to up to half of all mortgages and home equity loans. The volatile nature of interest rates in the lending market has inspired many homeowners to repeatedly refinance their homes in the last few years. Lenders often hold a mortgage for only a few months before the borrower finds a lower rate and refinances, paying Read more…

The Senate is trying to overhaul the bankruptcy laws. Credit card companies and retailers have been pushing for reform since 1997. Hopefully, the new law will come into effect by mid-March.

What have they been battling over?

They rejected an amendment that would allow older people to get a special ?homestead exemption? that would allow them to keep their homes if they file bankruptcy. Currently, this is determined by each state. Six states currently have unlimited homestead exemptions. This means that rich people can file bankruptcy and keep their big houses. Doesn?t sound fair.

They also wanted to have credit card statements show how long it would take to pay off the debt by making only the minimum payment and what the interest charges would be.

One proposal would allow people to Read more…

Of course, bankruptcy is your last resort. It is tough but provides a legal remedy for your financial situation.

Bankruptcy is a 3-step process:

You must first file in federal or state court saying you are ?insolvent? ? meaning you have no cash or assets (things you can sell) to pay your bills.

You have to arrange a repayment plan with creditors and the court.

You ?discharge? ? meaning settle your debts with creditors for usually a lower amount than the original bill. This gives the creditors some of their money back.

Pros and Cons:

Pros:

Legal protection from creditors

Takes care of most of your debt

You may get to keep your home

May stop financial ruin

Enables a fresh start

Cons:

Bad Credit

Still have to pay some debt

Have to go to court

May loose your assets

Loss of privacy (usually they print your bankruptcy in the paper)

What if I don?t file bankruptcy ? what could happen?

Bad credit rating ? making it hard to ever borrow again

Creditors may sell your property you put up as collateral ? like your car or house

Lawsuit ? and if you lose, you?d have all the legal Read more…

So are student loans able to be discharged? In short, probably not. Student loan debts are nondischargeable in Chapter 7 Bankruptcy cases unless paying the debt would cause the debtor “undue hardship.” This basic rule also applies to Chapter 13 Bankruptcy cases.

Discharge of student loans received popularity in the 1970’s. Many individuals would file for bankruptcy shortly after completing their expensive education. The goal was to discharge these student loans before they began earning money.

The wording of the exception of a ?hardship discharge? and what is considered a student loan has recently been broadened so that most student loans made by nonprofit groups or the government are now considered student loans. This only applies to the actual student and not a co-signor. So a parent signing for one of their children could not have this debt discharged. In addition, this exception does not include debts to an educational institution for tuition. If the loan is nondischargeable then the petition on the loan is also not going to be discharged.

So we turn to “undue hardship.” Most published court opinions agree that “undue hardship” means more than garden variety hardships that come with the costs of future payments. Several circuit courts of appeals have developed a three-prong test.

In summation, the debtor cannot maintain a minimal standard of living and his dependents are left with the debt, Read more…

Many people who have filed bankruptcy in the past apply for credit the wrong way.

They fill out a credit application and hope for the best.
Best case, they probably end up paying a lot more in interest
and finance charges – hundreds or even thousands of dollars more, depending on what they’re buying.

That said, in this article we are going to talk about the RIGHT way to apply for credit and loans. So what is it? Well there are three steps:

1) Learn how to increase your credit score

2) Know the credit approval process

3) Know how to apply for credit and loans

Now, you want to get all three of these steps right. Not just
one or two, but all THREE! See if you miss one, or don’t do
it just right, you can end up paying $100s, $1,000s or $10,000s
in additional interest and finance charges, depending on what
you’re financing.

Here are the three steps in more detail…

Step One: Learn how to increase your credit score.

Increasing your credit score is a key factor in lowering the
interest rate you pay on loans and getting approved for them as
well. Unfortunately, there are a lot of myths out there that
can actually hurt your credit score.

There a number of ways to increase your credit score. One way is to watch your credit card balances. Lenders don’t like to see them go above 50% of the available credit limit.

For example, if you have a credit limit of $3,000 and you’re
current balancing owing is $1,800 (60%) that can hurt your credit score. In this situation, there are two ways you can fix the problem.

First, of course, is to pay the balance down so that it’s less
than 50% of the credit limit. The other way is to get a credit
limit increase:

If you can get a credit limit increase to $5,000 that will means
you will be at less than 50% of your credit limit ($1,800 balance versus $5,000 credit limit). And you didn’t have to pay down the balance by a penny!

Another way to increase your credit score is to add years of
positive credit history to your account. Most people don’t know
about this and it’s 100% legal. But that’s another article in itself.

The point I am trying to make is that there are a number of
strategies you can use to increase your credit score. Best of all, many of them can be implemented quickly and easily.

Step Two: Know the credit approval process

What do potential lenders look for? Here you need to know the
questions to ask. For example, do they work with people who
have had a bankruptcy in the past? What is the minimum credit
score they want to see? These are just the initial questions.

There are a number of other questions. There are also a number
of items that send up red flags if a lender sees them on your
credit application – ones that could jeopardize your chances of
qualifying for the loan or cost you more money in interest.

Another factor when applying for credit and loans is timing.
You don’t want to apply for credit and Read more…

Americans know all too well how much it costs to use credit cards. The average household in the U.S. now has nearly $10,000 in credit card debt. Carrying such debt is fine, as long as you realize that there are costs associated with it. The interest rates aren?t particularly low and the fees charged for paying late or going over your limit can be steep. Late fees of $39 aren?t uncommon, and they are assessed if your bill fails to arrive by the due date, even if it was delayed in the mail.

The credit card companies have been listening to consumer complaints about expensive late fees and several of them have responded. American Express and Citibank have both recently introduced cards that are both advertised as having no late fees. There may be a twist involved; Citibanks?s Simplicity card carries no late fees as long as you make a purchase each month within the billing period. But no late fees? Aren?t late fees the card company?s way of making sure that you pay your bill at all? What happens if you don?t pay your bill?

That?s where the fine print comes into play. Your agreement requires you to pay your bill on time. With the Citibank card, paying late carries the usual fee of up to $39 if you pay late and haven?t made a purchase during the billing period. If you have made a purchase within the billing period, but you have still paid late, Citibank may, at its option, raise your interest rate. In fact, they Read more…

Most Americans are aware that any time they try to borrow money, the lender consults with a credit report outlining the borrower?s credit history. These reports are prepared by the major credit bureaus ? Experian, Equifax and Trans Union, and the reports, along with the accompanying credit score, contain a distillation of the borrower?s entire financial history. Armed with that information, the lender can make a decision as to whether granting a loan or credit would be wise. What many Americans don?t know is that most credit reports contain errors. Worse, it can take months or even years to correct those problems. In the meantime, the errors may prevent the borrower from obtaining a loan or credit.

A recent study shows that nearly four out of five credit reports contain errors. Worse, roughly one in four contains an error that is serious enough to prevent the individual from obtaining credit or borrowing money. Most of these errors are minor; they may simply consist of an incorrect address, phone number or perhaps date of birth. Others can be more serious, such as listing a paid loan as being in default, or including information from another person?s credit history. These types of problems can be serious, as they can adversely affect the credit score of the individual involved. The lower the credit score, the harder it is to obtain credit or to get a loan at a favorable interest rate.

According Read more…