When debt feels overwhelming, two of the words that pop up a lot online are IVA & bankruptcy. But what do they actually mean and how do they affect you if you’re in your 20s?
Let’s break it down in plain English.
What is an IVA?
An Individual Voluntary Arrangement (IVA) is a legally binding agreement between you and your creditors.
- You pay what you can afford each month (usually for 5–6 years).
- Creditors agree to freeze interest and stop chasing you.
- At the end, any remaining qualifying debts are written off.
- An Insolvency Practitioner (IP) manages the IVA
Example: If you owe £25,000 but can only afford £200 a month, an IVA could mean paying £12,000 over 5 years and the rest is written off.
What is Bankruptcy?
Bankruptcy is a legal process to clear debts you can’t repay.
- It usually lasts 12 months.
- After that, most debts are written off.
- You may have to sell valuable assets (like a house or car worth more than £2,000).
- Your name goes on the public Insolvency Register.
Example: If you owe £25,000, can’t pay, and don’t have assets, bankruptcy could clear it in 12 months. But if you own a home, it may have to be sold.
Which one fits young professionals?
It depends on your situation.
• IVA may suit you if:
o You have regular income (even if debts feel huge).
o You want to protect assets like a car.
o You prefer structure and creditors agreeing to stop chasing.
• Bankruptcy may suit you if:
o You have little income and no assets to protect.
o You want a faster reset (12 months).
o You’re not planning big credit-dependent goals in the next few years eg. Buying a house
The FCA bit (what you need to know)
• Both IVA and bankruptcy affect your credit file for 6 years.
• With an IVA, if you don’t keep up payments, it can fail and you may face bankruptcy anyway.
• Bankruptcy can be quicker, but it carries more stigma, impacts your assets and may impact future employment opportunities
• Fees apply to both
• Free debt advice is available from charities like StepChange or National Debtline.
Final thought
IVAs and bankruptcy aren’t “failures.” They’re legal tools designed to give you a fresh start. The right choice depends on your income, assets, and goals.
At Dexter Bell, we’ll look at your whole picture: salary, living costs, debts, and future plans. Only then we will guide you to the option that genuinely works best for you.
