UK’s IVA secret key to solving personal bankruptcy
I’ve had quite a few people asking me about the UK method of dealing with bankruptcy. Yes folks, there are some things that these Brits can do… quite well! One of those things is how they deal with personal bankruptcy. In the US, heavily indebted consumers are left to their fate — it’s something like “you’ve brought it on yourself. Now suffer!” The British Government seems to empathize with its breed of debt-riddled consumers.
Let’s take a look at how the system works out here before we cross the Atlantic. Here you have the option of filing for bankruptcy or enrolling for a debt management program offered by credit counseling agencies. And look at the irony: many times, the payments for the debt management programs can actually be higher than simply making minimum contractual payments in the first place.
Now for how UK deals with its bankruptcy problem which is almost as bad as it is out here. In the UK, while bankruptcy is an option, indebted consumers can also seek to enter into a legally binding contract with their creditors (mostly unsecured creditors) called an Individual Voluntary Arrangement (IVA). After calculating the amount that the debtor can realistically pay every month, the IVA is scheduled. Typically, an IVA constitutes a 5-year monthly repayment proposal. In a typical proposal, you would have to offer a minimum of 25% of the debt outstanding to be repaid over a 5-year period.
Creditors prefer the IVA since they will receive some payment as opposed to bankruptcy where unsecured creditors will often receive zero or close to it. And the best part? In an IVA system, creditors are not allowed to contact the debtor at throughout the duration of the IVA and the fact that in most cases an large element of the debt will be ‘written off’ in 5 years time leaving the individual completely debt free.
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