I am renting and cannot pay my debts: should I declare bankruptcy or do an IVA?

People who are renting their property will not lose the roof over their head if they declare bankruptcy. So as a tenant, is it better for an individual in serious debt to declare bankruptcy or undertake an individual voluntary arrangement?

If you enter into an individual voluntary arrangement (IVA), it will normally last for five years. During this time you need to maintain agreed monthly payments.

If your circumstances improve or you come into a windfall, you are likely to have to increase the monthly payment you make.

On the other hand, if you had declared bankruptcy, you would be discharged after twelve months. Any windfalls would then be yours to keep.

Bankruptcy not an easy option

Bankruptcy should not be seen as an easy option. If you can afford to do so, you will have to pay towards your debts for up to three years. However, if you are on benefits or a low or uncertain income, it is likely that you will not be asked to make any payments at all.

If you are declared bankrupt, you cannot continue to act as a director of a limited company. As such if you are a director, this may be a very good reason to consider an IVA.

In addition, your landlord will be told that you are bankrupt. If you rent from the local council or housing association, this will not course any problem; however a private landlord might be a little more wary.

Nevertheless, when it is explained that once bankrupt you are more likely to be able to maintain your rent payments as your unsecured debts will have been written off, most private landlords will be happy for you to remain in the property.

IVA is a Private agreement

An IVA is a private agreement. Your landlord will not be told and so there is very little risk of them being unhappy for you to remain in your property.

However, over the past 12 months, the publicity around bankruptcy has also been reduced. Under normal circumstances, your name will no longer be advertised in the local newspaper unless you are a sole trader. This has made the procedure much more private for the majority of people.

Your name will of course be added to the insolvency register which is publically available via the internet. However, this will also happen if you carry out an IVA.

The difference to the extent that your credit rating will be affected by carrying out an IVA or bankruptcy is minimal. In both instances, the record of the procedure will be recorded on your credit file for 6 years.

However, given that you would be discharged from bankruptcy after 12 months, you are technically able to borrow money once again at this time. If your bank will allow it, you could therefore take a small overdraft or credit card limit and begin to build up your credit rating. Arguably therefore, your credit rating could repair sooner after bankruptcy than if you had undertaken an IVA.

If you are renting your property, your home is very unlikely to be effected if you declare bankruptcy.

As such, unless you are a company director or simply cannot afford the required IVA payments and therefore have no choice, the question of whether to declare bankruptcy or do an IVA really comes down to personal choice and whether you want to make the best effort to repay your debt.

By choosing the IVA route, it is almost certain that you will pay a greater amount back to your creditors as you will be making monthly payments for five years.

However, with many creditors demanding that tight living expenditure guidelines are adhered to if an IVA is to be accepted, it is easy to see why tenants who are suffering with debt decide to declare bankruptcy rather than an IVA and the number of people carrying out this procedure is increasing.

If you are struggling with debt, visit www.BeatMyDebt.com

Our vibrant forum gives free access to industry experts and others who have suffered with debt problems.

Useful guides, calculators and information are also available designed to help you understand how to manage and resolve debt problems.

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