Question

When people are heavily in debt, they could consider filing for bankruptcy or individual voluntary arrangement (IVA). Elaborate the impacts of these two arrangements on the debtors’ daily lives.                                                                                                                    
                  

Answer 1

The impacts of bankruptcy

1.  the most well-known consequence of bankruptcy is the loss of property

bankruptcy proceedings can require you to give up possessions for sale in order to repay creditors. Under certain circumstances, bankruptcy can mean losing real estate, vehicles, jewelry, antique furnishings and other types of possessions.

2. bankruptcy can affect others financially

For example, if your parents co-signed an auto loan for you, they could still be held responsible for at least some of that debt if you file for bankruptcy.

3. bankruptcy damages your credit and credit score

Bankruptcies are considered negative information on your credit report, and can affect how future lenders view you.Seeing a bankruptcy on your credit file may prompt creditors to decline extending you credit or to offer you higher interest rates and less favorable terms if they do decide to give you credit.Bankruptcy information on your credit report may make it very difficult to get additional credit after the bankruptcy is discharged

4. it can make it difficult to get a mortgage

You may find lenders decline your mortgage application, and those that do accept it may offer you a much higher interest rate and fees. You may be asked to put up a much higher down payment or shoulder higher closing costs.

5. Privacy

A negative consequence of filing for bankruptcy is that everything you file with the court—including all of your bankruptcy schedules, which contain your personal financial information—can be accessed by the public. That means friends, family, employers, and clients could potentially find out the details about how much money you owed and who you owed it to

6.You may lose the right to take or continue legal action

If you're involved in any legal action, you need to inform your trustee. If you have a pending court case, you should contact the court to confirm whether you must still attend.

The impacts of individual voluntary arrangement (IVA)

1. Difficult getting credit

If you have an IVA you may find it difficult getting credit in the short term. You may be able to get credit for personal household goods and services.f you own your own business you may be able to get credit for business goods and services. However, you may be charged higher interest rates. This could cause you to get into more debt that you can’t afford to pay.

2. IVA affect your credit rating in the long term

Once the IVA is completed, your details will be removed from the Individual Insolvency Register after three months. Details of the IVA will be held on your credit file for six years from the date that the IVA starts.

3. IVA affect certain Job or profession

Having an IVA will not usually affect your job. But if you are in certain professions, such as solicitors and accountants, having an IVA may mean that you can no longer practice, or may practice only subject to certain conditions. If you are worried about the impact of an IVA on your job, check the terms and conditions of your contract to see if it says anything about continuing to work when you have an IVA.

4.IVA affect expensive Possessions

Everyday possessions such as items you use in your home are not affected by having an IVA. However, if you own more expensive items, such as antiques or expensive jewelry, you may want to consider selling these to help pay your debts.

5. IVA Effect the independ use of asset

If you decide that an IVA is right for you, your insolvency practitioner will discuss your assets with you and whether these should be included in the IVA or whether you can keep them. You must tell the insolvency practitioner about all your assets. If you don’t, you will be breaking the law.

Any assets that you want to keep, such as a car, must be specifically excluded from the IVA. If you don't want to include an asset and the insolvency practitioner doesn't think the creditors will agree, the proposal won't be put forward.

6. IVA may affect any future income or assets that you receive

For example, if you decide to move house while you have an IVA, any money you make from the sale might have to be paid into the IVA.If your income increases while you have an IVA, you have to declare it to your insolvency practitioner. If you don't, you could be breaking the law.Most IVAs contain a windfall clause. A windfall is money you receive unexpectedly, for example, winning the lottery, inheriting a house or getting a large bonus payment. If your IVA has a windfall clause, you will have to pay any windfall money into your IVA.If it’s likely you're going to receive an inheritance or large bonus or gift within the next five years, you should think carefully about whether an IVA is suitable for you.

7. Payment Protection Insurance (PPI) refunds

If at the time the IVA is being set up you are entitled to a PPI refund and you go ahead with an IVA, the PPI refund counts as an asset and any refund paid will be taken by the insolvency practitioner and paid into the IVA.

8. IVA Effect your borrowing

Any bonuses or additional income must go towards your debts.

9. IVA Effect your spending

You'll only be allowed to borrow up tolimited amount as per law or court order during your IVA. If you need to borrow more, you'll have to get approval from your insolvency practitioner. Also, you may find it difficult to get approved for credit.

10. IVA Effect your Business

Companies can check if someone’s on the Insolvency Register before trading with them – so, if you’re self-employed, an IVA may damage your reputation and ability to do business.