It’s natural to feel worried about bankruptcy, but some websites set out to make it sound a lot worse than it is.
Some of what they say is simply wrong.
Other bits may be right but they leave out important facts, so the issue sounds more difficult than it is in practice.
And it’s common for problems associated with bankruptcy to be listed in detail, but very similar points about Individual Voluntary Arrangements (IVAs) to be ignored.
Why would websites do this?
You may be a looking at a website whose name suggests it gives advice on bailiffs or bankruptcy… but often that is not why it has been set up!
Most of those websites belong to firms who are IVA lead generators, also called IVA introducers. These are companies whose only source of income is the large referral fee they will get from selling your details to an IVA firm. Sounding like they are helping you with bailiffs or bankruptcy is just a way to get you onto their website.
One way to get you to want an IVA is to make the alternative of bankruptcy sound like something to be avoided. This year the Insolvency Service, a government department, said:
debtors were being steered towards an IVA due to the effects of bankruptcy, when in reality bankruptcy may have been the most appropriate option and would have had little or no more impact on the individual than an IVA …In some instances, there was also evidence that introducers .. may be misleading people about the bankruptcy process.
The errors, the exaggerations and the facts
Here are some examples. taken from websites in December 2018, with my comment on each.
Court and the application process
“Going bankrupt involves going to court.”
Wrong – the bankruptcy application process has been online since April 2016.
“should your request to declare bankruptcy be accepted”
It’s common to see something like this. You may be worried that you won’t be allowed to go bankrupt. But more than 99% of bankruptcy applications are approved and most of those rejected come from non-UK citizens.
“With bankruptcy you will need to make sure all debts included are listed to the Official Receiver, in order for them to all be captured in the bankruptcy.”
Wrong! It is actually a major advanatge of bankruptcy compared to IVAs or DROs that all your debts are covered even if you don’t list them on your bankruptcy application.
If the official receiver believes it would help the investigation, members of your family, or employers could be scrutinised in court.”
That sounds terrifying. In practice it doesn’t happen.
Selling your assets
“any assets you have will be used to pay off your creditors.”
“you will hand over all rights to your personal belongings (assets) to a ‘Trustee’. It’s the Trustee’s job to oversee the sale of your assets”
They sound scary and intrusive. It would be a lot less worrying if the pages had mentioned that your clothes and normal household possessions aren’t at risk and you don’t even have to list them. Apart from a house with equity or an expensive car, 99% of people will not have anything else sold and no-one will visit your house.
Access to banking and credit
“During the bankruptcy you cannot use your bank account”
Alarming – how could you manage without a bank account? It would be more accurate to say if your bank closes your current account, you can open a new basic bank account with any of nine banks.
“In bankruptcy it is likely that all bank accounts will be frozen.”
But only for a couple of days – they don’t mention that!
“If you are made bankrupt you have to follow certain ‘restrictions’, including the prevention of borrowing more than £500 without telling the lender. It is a criminal offence if you break these restrictions.”
True. But these websites rarely say the equivalent on their IVA pages: that you have to get permission from your IVA firm to borrow more than £500 and if you break this rule you can be made bankrupt. Or that the IVA restrictions normally last for five or six years, whereas the bankruptcy ones are normally for one year.
Making monthly payments
“You are usually discharged from your bankruptcy 12 months afterwards however it could be deemed necessary for you to pay back into your debts for a further 3 years.”
Misleading. Many people will read that as making payments for four years – that’s wrong, it is a maximum of three. And five out of six people who go bankrupt don’t make any monthly payments at all.
Credit records
“compared to other arrangements such as bankruptcy – which leaves a mark on your credit file for up to six years – [an IVA] may not be quite as impactful.”
Wrong. An IVA leaves an insolvency marker on your credit record for 6 years, just like bankruptcy.
And vague assertions
Bankruptcy orders can be fairly monumental
It’s not clear what that means, but it doesn’t sound good!
“For many people, an IVA is the preferred solution as it enables them to avoid bankruptcy and all the unsettling consequences that come with it.”
If you think bankruptcy is “unsettling” and an IVA isn’t, you need to read about all the things that can go wrong with IVAs and their high failure rate! Which most IVA lead generator websites don’t discuss.
Getting some good advice
Going bankrupt is a big decision, as is an IVA or Debt Relief Order. If you can’t decide between two options:
- a DRO is always best if you meet the criteria;
- Bankruptcy or an IVA has a direct comparison.
You need good advice from someone that isn’t going to make any money out of you whatever you decide to do.
I suggest you go to your local Citizens Advice if you would like to talk to an adviser face-to-face, or call National Debtline if you would prefer the phone or webchat.
Debt Camel articles on IVAs
Articles about Debt Relief Orders
Debt Camel articles about bankruptcy
Nick Pearson says
Nothing sums up the moral ‘bankruptcy’ and downright lying of many IVA lead introducers, and the ‘guilty by association’ firms who buy IVA leads, than the deliberately inaccurate information about bankruptcy.
Gill says
I was told I’d have my car taken away with bankruptcy ?so the iva doesn’t do that?
Sara (Debt Camel) says
how much is your car worth? you own it, rather than it is on finance or it was bought by someone else?
Arlene says
Also agencies that put you on a dmp only for it to be finished when you would be dead.
Latetrain says
Unfortunately I come across on a regular basis people who should have gone through a DRO but are now stuck with an IVA through miss selling, unfortunately once you are in an IVA you are stuck as you cannot apply for bankruptcy or a DRO until you get a cancellation certificate from your insolvency practitioner. This can take many months from last payment, some people are threatened with additional costs for foreclosing their IVA but I tell them not to worry just add it to their list of creditors as long as it does not take them over £20k.
I always refer people to National Debtline as they have a very good information sheet on DRO’s https://www.nationaldebtline.org/EW/factsheets/Pages/debtrelieforders/droadvice.aspx
Clive Bunch says
I went to a well known website for advice after a marriage break up and was steered towards an IVA ( the advisor admitted getting a commission if I signed up). I declined and after receiving advice elsewhere it has proved to be totally the wrong action for me.
Be careful with any site suggesting an IVA is your best course of action, turns out I was owed a lot of money in miss sold PPI and unfair charges, none of this was looked into!!
Michael Peoples says
There is a major issue with the cost of bankruptcy. People in debt do not have £680 [or £1360 for a couple] and are left in a very awkward situation. With bailiffs knocking at the door they face the option of entering an IVA or trying to beg, steal or borrow the funds for bankruptcy. For many such debtors an IVA offers a quick solution and the legal protection they so require. Bankruptcy may in theory be a better option but in reality many cannot afford it.
I have also advised many debtors to investigate a DRO where this appeared the best option. However, many have come back to me saying they could not get an appointment with an advisor for at least six weeks or they were told by certain companies that a DMP would be more suitable. An IVA is certainly a more appropriate option than a never-ending DMP.
There are undoubtedly many debtors in IVAs who would pay less in bankruptcy and our clients are fully aware of this. However, most have borrowed in good faith and feel better making an offer to creditors so who are we to tell them that they are wrong? Perhaps therefore we should be looking at the lack of access to debt advice and the unaffordability of bankruptcy before just blaming the IVA companies. We may not be perfect but our client reviews are higher than the ‘free’ sector so we must be doing something right.
Sara (Debt Camel) says
I agree on the bankruptcy fees, they are a disgrace to the Insolvency Service. But most bailiffs do not have a right of entry and it’s better to save the IVA fees for a few months and then go bankrupt rather than struggle for 5 years.
Ditto DRO appointments. Better to take the c. 10 weeks to set one up. Anyone who does qualify for a DRO will have problems managing an IVA.
I do agree more funding for debt advice and lower bankruptcy fees are important. As my Review of the year says “Every report from Citizens Advice, StepChange and National Debtline tells the same story. Priority bills and debts are becoming more important, consumer debts comparatively less important, and people’s disposable income is dropping. Most of that is outside the control of Debt Policy Makers but they underpin the need for additional resources for debt advice (at a time where across the country cuts are being made), and more focus on the suitability and accessibility of insolvency solutions.“
Michael Peoples says
I fully agree Sara. We do not want people in IVAs who struggle with payments as invariably they will fail and our regulators look very closely at low level IVAs and early failures. We are regulated by ICAS who received a clean bill of health from the insolvency service when they reviewed the regulators last year and I believe that their strictness was a major factor.
There is also the issue of vehicles in bankruptcy which concerns many debtors. There has been an explosion in the number of PCP agreements and these usually have a right to repossess in the event of bankruptcy which frightens debtors. In addition, if the car is owned outright it is at risk even if only a modest vehicle so again debtors are fearful. These are concerns we cannot assuage when speaking with debtors as it would be between them and the finance company or Official Receiver so many debtors opt for the IVA so as not to risk losing their car.
Essentially a debtor needs to weigh up the initial cost of the bankruptcy, the potential loss of their vehicle [or payments in lieu of the equity], any potential income payments plus possibly home equity to be addressed and many come to the conclusion that an IVA is the safest option. Ultimately, affordability is the most important issue but peace of mind is also vital which an IVA will usually provide.
Sara (Debt Camel) says
Cars are a problem, but also in IVAs for some people, who don’t get this properly explained to them at the start. I do sympathise with the IVA firms who are doing their best to be responsible, but too many lead generators and IVA firms aren’t. If the IS started to publish failure rates, that would be some help to clients who have no way of telling how good an IVA firm is at the moment.
Latetrain says
I have seen some shocking IVA’s recently even when their car is worth much less than £1k, the most recent trend I have come across is 6 year IVA’s for claimants without any assets, why? The only reason I can think of is to make the lead generator more commission.
I usually only recommend two IVA firms whom I believe act responsibly in the interest of the client and not the lenders. We do not get paid by lead generators from recommending either company, at the end of the day the client decides which company to go with if an IVA is in their best interest.
Our aim is to sort out our clients debt problems in the most efficient way suitable to the client whether it’s DRO route, IVA or Bankruptcy and if it is for a short period in time a debt management route, we look at all options suitable for the client and explain the options, the client will choose the option and we will support what ever choice they make.
erin says
I am currently trying to make the payments for bankruptcy only another £300 to go, my old car broke and was scrapped back I September my parents bought me a little car however when I have gone on the we buy any car site it said its worth £4.500 – the car is in my name however my parents bought it and they will have the bank statement to prove it – will my car be at risk?
this is awful really need to get it sorted as I cant cope with the stress any longer.
thanks
Sara (Debt Camel) says
It doesn’t matter who the registered keeper of the car is, who drives it most or whose name the insurance is in. What matters is who owns it. If your parents bought the car but are just letting you drive it, then they still own it and it won’t be at risk. See the Will the OR take husband’s car which I drive? section in https://debtcamel.co.uk/lawnmower-bankruptcy/.
Read https://debtcamel.co.uk/help-with-bankruptcy-fees/ which has some ideas for getting together the bankruptcy fee. Also can I check you have taken some advice about bankruptcy?
erin says
Hi thank you so much for your quick reply..
Yes I have spoken with both national debt and step change when I asked this question she said they would take it as I am on the log, I tried to explain that my parents paid for the car and will have the bank statement to prove it, however I tax, insure and use it my dad is also a named driver on the car aswell .. it’s the one thing that’s been totally panicking me as I didn’t pay for it and the thought that they would take it away would be awful for my parents in an even more stressful time just wish it was over with!
Sara (Debt Camel) says
I am sorry you are getting conflicting information – it makes things even more stressful for you.
“I have spoken with both national debt and step change when I asked this question she said they would take it as I am on the log” Who was the “she” – National Debtline (and if so are you sure you were talking to the real NDL on 0808 808 4000 as there are several commenrcial companies that try to get you to click on them instead) or StepChange?
The facts as I know them: When you go bankrupt, the Official Receiver will start by assuming that a car registered in your name belongs to you – that is after all correct in the large majority of cases. But the registered keeper of a car is not neccessarily the beneficial owner. if you explain it belongs to your parents and produce the evidence (receipt and your parents bank statement) the OR will accept that actually it belongs to your parents. In which case it is safe. The fact your father sometimes drives this is further evidence but actually it’s not needed.
Erin says
Hi Sara
It’s me again (sorry) I have spoken with my mam who is also worried that the car she bought will be taken ( I am sure I am just in a total panic) if I started to pay money to my parents per month would this prove that the car wasn’t a gift ( it wasn’t a gift ) and that way my parents could keep the car? Along with the bank statement that shows they purchased it with me just being the registered keeper?
Thank you so much for your advice
Gareth says
Hi Sara and everybody reading this.
Very good article indeed. I am about to go Bankrupt in Northern Ireland. Long story short I ended up with 25k worth of debt through my own stupidity. My questions are will I be able to keep my broadband internet and say if I had to pay an IPA would they take all of my spare income. Also just on a curios note has anybody dealt with the Official Receiver in Belfast and what was your experience with them.
Thank you in Advance
Gareth
Sara (Debt Camel) says
Have you taken debt advice on this? A debt adviser should be able to say if it is likely you would have to pay an IPA. Some of the insolvency rules in Northern Ireland are different so it is best getting local advuce.
Gareth says
Evening Sara Thank you for the swift reply I managed to speak to someone tonight and he said that there could be a possibility of getting an IPA due to the extra income I have left after my expenses but he said that they will only take a portion of it and not the whole lot.
Brilliant website by the way I feel a lot calmer now knowing that i’m not alone.
Michael Peoples says
I work for an IP firm in the North and IPAs are not that common but of course it does depend on affordability. The O.Rs office is very professional and the procedure is relatively straightforward although different to England & Wales. I would suggest that you perhaps speak with someone in a local Advice Centre as they may know when or whether the 30k DRO ceiling has been introduced here and if you would qualify. They will also help you complete the forms so depending on where you live there should be someone that you can speak with.
As far as I am aware Citizen’s Advice no longer operate here under that name and the former offices are now branded as Advice NI. You will get the same service from the same people who are ex CAB but just under a different name.
Gareth says
Thank you Michael for your advice. I managed to speak to some one this evening from Advice NI and he said that the DRO for Northern Ireland is still 20k. Glad to hear that its a straightforward procedure as ive been climbing the walls with worry. It does seem to different to England and Wales because I have to go to court to get permission for the Bankruptcy.
Thanks once again for your advice I think I can actually sleep tonight.
Bee says
This is so helpful although I’m still panicked as to whether to make the change – I’m paralysed by fear to be honest. I have an IVA since 2022 and have been making payments but I have ongoing issues with the HMRC.
I have a significant self-assessment tax debt…very very high (though currently “captured” in my IVA)… is this likely to mean I would make payments beyond 3 years if I were to consider bankruptcy? I’m very very anxious and worried that the authorities will think I have intentionally not managed my debt despite awaiting essentials from HMRC (a new UTR for eg as I am self-employed and they have not issued a new UTR so will not let me submit my tax return for 22/23)…I read on one of your other posts that someone had a very long BRO for a high tax debt and I am terrified of this so am trying to make the IVA work…I have 5 children, one has additional needs & I want to get things in order for them and not live in fear.
I am also absolutely terrified of my parents finding out if I went bankrupt (despite being an adult with kids of my own) – is this guaranteed?
The stress is unbearable.
Thank you for any advice
Sara (Debt Camel) says
I think you should talk to Business Debtline https://www.businessdebtline.org/ about your situation and the IVA and the option of letting it fail and going bankrupt. This must be very stressful, you need someone to help you look at the full case, not go by what may have happened to other people – very ling BROs are HIGHLY unusual.
Bee says
Thank you – I have spoken to them in the past and shall do so again. I genuinely can’t cope with the stress and I don’t know what to do – I worry re the BRO having read your post even though we’ve just been trying to get by and I’ve been in constant contact with the HMRC about sorting out future tax – I’ve never had an annual review or anything from my IVA company and obviously the cost of life means everything has increased from their original estimates. I work constantly and earn well but fear I’m doing everything wrong. I will speak to the people through the proper channels though and really appreciate your reply.
Michael Peoples says
If your IVA was approved in tax year 22/23 then this return should be filed under your current UTR and the debt would be captured within the IVA. The new UTR starts the tax year after approval so if your IVA was approved pre April 2022 then you should have a new UTR for 22/23 but if it was approved post April your current one applies.
When was the IVA actually approved?
Bee says
HI Michael,
IVA approved and begun in Jan – approved Jan 7th 2022.
HMRC wrote to me in mid-2022 saying do not use old UTR and all tax owed/penalties etc for 21/22 was captured in the IVA.
I have not received a new UTR – I have asked regularly (speaking to the HMRC usually via live chat due to my anxiety making phone calls near impossible) and the HMRC say there are long delays and they have requested it for me, it has been requested 6 times now. I have lodged a formal complaint yet still nothing is moving…it’s extremely worrying and obviously there will be tax due in January and I can’t even file, let alone have it saved and ready. I am trying to do everything right and getting nowhere.
Thank you for commenting and any advice of any kind is greatly appreciated, I clicked your name and my IVA is actually with your company too.
Michael Peoples says
Hi Bee
Sorry to hear about your stress and please feel free to contact me directly and I will do my best to help. If phonecalls are stressful drop me an email and we can easily correspond like that. I do know that HMRC have had backlogs which is not a justification but we will get it sorted out. Bankruptcy is always an option but there also alternatives such as payments breaks or reductions so given that your IVA has been running almost two years already hopefully something is going right. By all means keep your tax money in a savings account as it does not need to be paid until January anyway and you can always calculate your liability or we can help you do that. At least if you know what you will have to pay it does not matter as much if the return is filed immediately.