IVA’s & bankruptcy
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Credit Reference Files
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June 11, 2020
IVA’s & Bankruptcy
If you are considering either of these options to deal with your gambling debt, then it’s vital you obtain specialist advice first. As mentioned in other sections, free debt advice is available from debt management charities such as StepChange.
StepChange deal with people all the time who have gambling debt and you shouldn’t feel embarrassed about asking for help. However, you should be aware that both IVA’s & Bankruptcy can have serious long-term implications for you, and you will need to research each option carefully before making a decision. That said, both options are a highly effective way of dealing with your debt and in both cases you will no longer be contacted by your creditors once the process has been set up. In both cases, IVA’s and Bankruptcy are a form of insolvency. You can be insolvent when the amount of your debt exceeds the value of any assets you own. If you do take out an IVA or declare yourself bankrupt, then an official record will be made of this. This information is publicly viewable but it is unlikely anyone close to you would find out unless you tell them.
The following is a brief guide to each, but please note that it covers key points only. Both IVA’s and Bankruptcy are complicated legal processes that will require specialist advice.
Individual Voluntary Agreements (IVA’s)
An IVA is a legally binding voluntary agreement between you and your creditors. They are used to group all of your eligible debt together and payments you make into your IVA will be distributed to your creditors according to the value of the money you owe to them. The money you pay into an IVA is managed by an Insolvency Practitioner meaning you don’t have any contact with your creditors. Instead, the payments are dispersed fairly by your Insolvency Practitioner to your creditors on your behalf. In this regard, it’s similar to a debt management plan, only in this case an IVA is legally binding and once commenced, your creditors will take no further action against you. At the end of the IVA period which is normally 5 years, any remaining debt is written off.
As an IVA is a voluntary agreement it means that all parties need to agree to it. You will provide a detailed account of your income and outgoings to your Insolvency Practitioner who will then contact your creditors with a proposal of how much each will receive for the duration of the IVA. A meeting will then take place with your Insolvency Practitioner and creditors, who will then be asked to vote on your proposal. For the IVA to commence, at least 75% of your creditors (based on value of your total debt) need to agree.
Managing Your IVA
Once your IVA has been set up, it will continue to be managed by your Insolvency Practitioner and once the term is over, you will receive a certificate of completion. Like defaults and CCJ’s, an entry will be made on your credit reference file and it will remain there until 6 years after the IVA completion. Having an IVA recorded on your credit reference file will make it virtually impossible to obtain further credit and you should not seek to obtain any regardless. Obtaining further credit during an IVA can be considered a breach of it, and your agreement may then be terminated.
Eligible & Ineligible Debts For IVA’s
There isn’t a limit of the amount of debt that can be included in an IVA and most debts can form part of it. For example, you can include debts owed to family and friends as well as utility bill arrears. The most common forms of debt included are most unsecured debts such as credit cards, loans, catalogue debt, payday loans, and store cards. Again, you should get specialist advice from a debt management charity who will tell you what can and cannot be included.
Debts that cannot be included in an IVA include any secured loan such as a mortgage, student loans, court fines, TV license arrears, benefit loans or child support arrears.
IVA’s, Assets & Accommodation
Having an IVA will have no effect on your tenancy if you rent your home. If you own your own home then you will not be required to move. However, towards the end of the IVA, you may be asked to remortgage it to raise extra funds to pay off your IVA. You would normally only be asked to do this if it was affordable, but a re-mortgage with an IVA is likely to attract a higher interest rate. If you do own your own home, you should ask a specialist what the likely outcome would be for you at the end of the IVA term. If you cannot remortgage then you may be asked to extend the period of the agreement for an extra 12 months or raise more money from other sources.
IVA’s & Job Implications
Having an IVA wouldn’t normally affect your employment and you wouldn’t ordinarily have to disclose it. However, there are a few notable exceptions where it may have an impact. If you are a company director, work in the financial sector, law, or property sector, you may have to disclose it. An IVA may also affect you if you are a pub licensee. A specialist will be advise on this and don’t forget, you can obtain this for free if you use a debt management charity such as StepChange.
There are no up-front cost to an IVA, however you should be aware that they are not free regardless of who sets up the agreement. Fees are deducted from your monthly payments and these will vary between Insolvency Practitioners. The first 5 payments of your IVA will normally go towards the cost involved in setting it up, and around 15% of future payments will go towards the running costs of the IVA. Other costs may also be applied known as disbursements and these can include services such as any legal advice or property valuations if applicable.
As with an IVA, bankruptcy can have serious long-term implications for you and you should seek specialist advice if you are considering this option. Bankruptcy is another form of insolvency and is typically used if you have no hope of paying off your debts in a reasonable amount of time. Declaring yourself bankrupt will give you a fresh start and all of your debts will be written off. However, doing this will have serious implications for you and it will take several years before you will be able to obtain credit again. Bankruptcy can also affect your housing situation, your car (if you own one) and also your job. It does however offer a fresh start and like IVA’s, once the process is set-up then your creditors will no longer be able to take any further action or contact you.
Applying to go bankrupt is a legal process conducted by the Official Receiver. A debt management charity will be able to help you with the process but it does incur fees. A personal bankruptcy in England and Wales will cost £680 and in Northern Ireland it will cost £676. Bankruptcy generally lasts for 12 months, after which you will be discharged from bankruptcy. However, in certain circumstances, the official receiver may extend this and may ask you to pay money towards your bankruptcy (see restrictions below.)
Eligible and Ineligible Debts For Bankruptcy
As with an IVA, almost all of your unsecured debt can be included in your bankruptcy and these debts will be written off. Personal loans, credit and store cards, utility bill arrears, overdrafts and payday loans can all be included. However, there are some debts that can’t be included such as benefit loans or child maintenance payments. Criminal fines, TV license arrears and student loans are other examples of debt that cannot be included and you will have to carry on paying these.
Bankruptcy, Assets & Accommodation
Declaring yourself bankrupt can have serious implications for you and you can generally expect to lose any assets you have, which is why you should seek specialist advice beforehand. The implications are especially true when it comes to considering your living arrangements afterwards. If you live in privately rented accommodation then any rent arrears can be included in your bankruptcy, and will be written off. This means your landlord won’t be able to recover any money owed. However, this doesn’t mean that he cannot take action against you to have you evicted. If however, you are up-to-date with your rent payments, you will usually not lose your home during bankruptcy. However, this isn’t always the case as some tenancy agreements may include a clause that will end the agreement if you go bankrupt. You should also be aware that obtaining another property may prove difficult as many landlords won’t consider taking on new tenants who are bankrupt. You may be on better ground if you live in a council or housing association property. Whilst all of the above still applies, they will be less likely to evict you on declaring bankruptcy.
Whether or not you lose your home during bankruptcy will largely depend on whether there is any equity in the property. If there is, and it exceeds £1000 then the official receiver will look to sell your home. Any equity will then contribute towards your bankruptcy and will be distributed amongst your creditors. If you own your home jointly and there is equity, then the same will apply. However, the official receiver will only claim your share of the equity.
If there is little to no equity in your home, or if your home is in negative equity then you will normally be allowed to keep it. However, this is something open to review and the official receiver may still instruct you to sell it two years after the bankruptcy and claim any equity.
Bankruptcy & Your Car
Generally speaking, you should expect to lose your car in a bankruptcy agreement although there are exceptions when this might not be the case. If you own your car outright, the official receiver will look at your situation and may agree to let you keep it. However, this will only happen if it’s of low value and essential for you to keep it. Low value generally means that it’s worth £1000 or less. If it’s worth more than that, the official receiver may direct you to sell it and purchase a vehicle of lower value. If this is the case then any money made from the sale will be paid to the official receiver towards your bankruptcy.
The official receiver will only consider letting you keep your car if you can show that it is essential. For example, if you need the car for your job or couldn’t possibly get to and from work without it, then you may be able to keep it. You may also be able to keep the car if someone in your family has a disability and cannot manage without it. You can expect the official receiver to be quite intrusive on this issue and you won’t be able to keep your vehicle if it would simply be an inconvenience not to have it. For example, the inconvenience of public transport wouldn’t be enough to satisfy any conditions of being able to keep it.
Bankruptcy & Employment
Care should be taken with bankruptcy as declaring yourself bankrupt may affect your employment or your ability to obtain work afterwards. Your employment in the vast majority of jobs won’t be affected by bankruptcy but there are a few notable exceptions. Examples where you wouldn’t be able to carry on in your job would be if you were a company director or a charity trustee. If you worked in the financial sector and held a consumer credit license, or if you were an Insolvency Practitioner you would not be able to continue whilst bankrupt. There are also other jobs where you would need to check carefully if bankruptcy would affect your employment. These include jobs involving handling cash, a pub licensee, police, law, GP or dentist, and armed forces.
If you are concerned about the effects of bankruptcy on your employment then you can always speak to a trade union rep if you have one or your HR department if you feel as though you can do this in confidence.
Most banks will not allow you to keep your account if you declare yourself bankrupt. This does not mean you won’t be able to have a bank account but it will be a basic account that allows you to have wages paid into and bills paid from it. You will not be able to have loans or overdrafts with basic accounts. If you owe money to your bank that forms part of your bankruptcy then you will be advised to move to a different bank and open a basic account there. Once you are discharged from bankruptcy, you would then be able to open a normal current account. However, bankruptcy will show on your credit reference file for 6 years and any bank will check your file prior to opening a current account.
There are also other restrictions placed upon you whilst you are bankrupt. As well as the employment restrictions discussed above, you would also be unable to act as power of attorney if you look after a vulnerable person’s financial affairs. Also, you would be unable to purchase a property under the right to buy scheme. If you live in Northern Ireland, you would also be restricted on travelling to another country unless you first obtained permission from the official receiver.
The restrictions placed on you during bankruptcy will last until you are discharged. This is normally 12 months but in some cases it could be longer. If for example there was any element of fraud that contributed to your bankruptcy, the official receiver could extend the term by imposing a bankruptcy restriction undertaking order. This could potentially last up to 15 years. Similarly, an extended term could be imposed if you attempted to hide assets during bankruptcy or were reckless prior to going bankrupt. Unfortunately, this could also include gambling. However, you are strongly advised to be as transparent as possible with any gambling issues as the official receiver will have access to your banking transaction history. You may therefore wish to document any positive steps that you have taken to stop gambling to demonstrate that you have identified the problem and have been as responsible as possible.
Remember that you can get free impartial advice from a debt management charity such as StepChange who will discuss the best options open to you.
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