Bankruptcy vs IVA: What's the Difference?

An IVA is an agreement with your creditors to repay an affordable amount over an agreed period. Bankruptcy is a formal insolvency process in which control of certain assets passes to a trustee.

Neither solution is right for everyone, so it's important to understand the differences before making a decision.

	IVA	Bankruptcy
How it works	A legally binding agreement with your creditors to repay an affordable amount over an agreed period.	A formal insolvency process where a trustee deals with assets that form part of the bankruptcy estate.
Creditor approval	Normally requires creditors representing at least 75% of the debt voting to approve the IVA.	You do not need creditor approval when applying for your own bankruptcy.
Typical duration	Usually 60 months, although some Protocol IVAs last 72 months.	Bankruptcy normally lasts until discharge, which is usually after 12 months. Income payments can continue for longer.
Monthly payments	Usually based on your affordable disposable income.	You may have to make payments for up to three years if you have sufficient disposable income.
Your home	Under the 2025 Protocol, your family home is excluded from the IVA. Equity can affect whether the IVA lasts 60 or 72 months.	Your interest in your home can form part of the bankruptcy estate and may need to be dealt with by the trustee.
Other assets	The treatment of assets depends on the terms of your IVA.	Assets that form part of the bankruptcy estate may be sold or otherwise dealt with by the trustee.
Credit record	An IVA normally remains on your credit file for six years from the date it is approved.	Bankruptcy normally remains on your credit file for six years from the date of the bankruptcy order.
Debts	Qualifying unsecured debts included in the IVA can be dealt with through the arrangement, with remaining qualifying debt normally written off on successful completion.	Most qualifying debts are dealt with through bankruptcy, although some debts are excluded or treated differently.
Control	You generally retain control of your assets, subject to the terms of your IVA.	The trustee takes control of assets that form part of the bankruptcy estate.

The exact outcome depends on your circumstances and the terms of the particular IVA or bankruptcy.

What is an IVA?

An Individual Voluntary Arrangement is a legally binding agreement between you and your creditors.

You normally make affordable payments into the IVA, which are then distributed to your creditors according to the arrangement.

For a Protocol IVA, creditors representing at least 75% of the debt voting must approve the proposal. Once approved, the IVA is binding on the creditors covered by it.

The amount you pay is normally based on what you can afford after reasonable household expenditure has been taken into account.

An IVA doesn't necessarily require you to repay all of your unsecured debt. If you successfully complete the arrangement and meet its terms, qualifying unsecured debt remaining at the end can generally be written off according to the IVA.

What is bankruptcy?

Bankruptcy is a formal insolvency process for people who cannot pay their debts.

If you become bankrupt, a trustee or the Official Receiver deals with assets that form part of the bankruptcy estate. Assets that can be realised may be sold and the proceeds distributed to creditors.

If you have sufficient disposable income, you may also be required to make payments under an Income Payments Agreement or Income Payments Order for up to three years.

What is the main difference between an IVA and bankruptcy?

The biggest difference is how the two solutions deal with your assets, debts and repayment.

With an IVA, you make a proposal to your creditors setting out what you can afford to repay. If the required creditor approval is obtained, the arrangement becomes legally binding.

With bankruptcy, you enter a formal insolvency process and a trustee deals with assets that form part of the bankruptcy estate.

An IVA therefore generally gives you more opportunity to agree specific terms with creditors, while bankruptcy involves the statutory bankruptcy process.

Which is better: an IVA or bankruptcy?

There isn't a universally better option.

The most suitable solution depends on your individual circumstances.

An IVA may be worth considering if:

• You have a regular income from which you can afford monthly payments.
• You want to make a structured contribution towards your debts.
• You want to avoid bankruptcy where an IVA is appropriate.
• You own a home and want to understand how an IVA could affect it.
• You have circumstances that make an IVA more suitable than bankruptcy.
• Your creditors are likely to accept your proposal.

Bankruptcy may be worth considering if:

• You have little or no disposable income.
• You have few assets that would be affected by bankruptcy.
• You cannot afford the payments required by an IVA..
• An IVA isn't suitable or creditors don't accept your proposal.
• Bankruptcy would provide a more appropriate way of dealing with your debts.

These are general considerations rather than rules. A debt solution should be assessed on your own circumstances.

What happens to my house with an IVA?

This is one of the biggest differences to understand.

Under the 2025 IVA Protocol, your family home does not form part of the Protocol IVA. Instead, the amount of equity in your home can affect the length of the arrangement.

For a Protocol IVA, equity is calculated using 85% of the property's value minus secured borrowing, such as a mortgage.

If your individual beneficial interest is less than £10,000, the IVA will normally be 60 months.

If your individual beneficial interest is £10,000 or more, the proposed term will normally be extended to 72 months instead of realising the equity.

There is also no requirement for a further review of the equity value once the Protocol IVA is in force.

If you own a property with very high equity, more than one property or a buy-to-let property, a Protocol IVA may not be appropriate and a bespoke IVA or another debt solution may need to be considered.

For more information, see our guide:

An IVA and Your Home

What happens to my house if I go bankrupt?

Bankruptcy is different.

Your interest in a property can form part of the bankruptcy estate and may need to be dealt with by the trustee.

If you own a home, the trustee will consider the value of your interest in the property, any secured borrowing and the interests of other people who own or live in the property.

This makes home ownership one of the most important factors to consider before choosing bankruptcy.

If you own your home, don't assume that bankruptcy is automatically the better or worse option. Get advice based on the actual equity and ownership position.

Which is quicker: an IVA or bankruptcy?

Bankruptcy is generally quicker in terms of the formal insolvency period.

You will normally be discharged from bankruptcy after 12 months, although income payments can continue for up to three years where applicable.

An IVA normally lasts considerably longer.

A Protocol IVA is generally 60 months, or 72 months where the relevant home-equity threshold applies.

However, duration isn't the only factor to consider. The impact on your home, assets, income and future finances may be more important than simply choosing the solution that ends sooner.

How does an IVA affect your credit rating?

An IVA will have a significant impact on your ability to obtain credit.

The IVA is normally recorded on your credit file for six years from the date it is approved.

Completing an IVA early does not normally remove the record early.

You may also have restrictions on obtaining further credit while the IVA is running.

How does bankruptcy affect your credit rating?

Bankruptcy also has a significant impact on your credit history.

A bankruptcy will normally remain on your credit file for six years from the date of the bankruptcy order.

It can make obtaining mortgages, loans, credit cards and other financial products more difficult and potentially more expensive.

What debts can be written off?

Both bankruptcy and an IVA can deal with many types of unsecured debt, but not every debt is treated in the same way.

Certain debts are excluded or treated differently under insolvency law.

Examples can include some court fines, certain student loans and some debts arising from fraud or other specific circumstances.

You should always check whether your particular debts can be included before entering either solution.

What happens if an IVA fails?

An IVA is legally binding, so you need to comply with its terms.

If you stop making payments or fail to meet other obligations, your Insolvency Practitioner may take steps to terminate the arrangement.

If a Protocol IVA is terminated, creditors may no longer be prevented from pursuing the outstanding balances directly, and interest and charges may become relevant again.

This is why you should speak to your Insolvency Practitioner as soon as you realise you're struggling rather than simply stopping your payments.

For more information, see our guide:

Problems with an IVA

Can I go bankrupt if I already have an IVA?

Potentially, but you should not simply cancel your IVA and apply for bankruptcy without getting advice first.

Your circumstances may have changed since the IVA was approved, and there may be alternatives such as a variation or full-and-final settlement.

If the IVA is no longer sustainable, your Insolvency Practitioner should explain what options are available and what the consequences of termination would be.

Can I change from bankruptcy to an IVA?

The circumstances in which someone moves from bankruptcy to an IVA can be complicated.

If your circumstances change after bankruptcy, you should obtain specialist advice before taking action.

A debt solution isn't simply something that can always be swapped for another.

IVA vs bankruptcy: which should I choose?

The answer depends on your circumstances.

The key questions to consider include:

• How much do you owe?
• What is your monthly disposable income?
• Do you own a home?
• How much equity do you have?
• Do you own other valuable assets?
• What debts do you have?
• Are your debts mainly unsecured?
• Is your income stable?
• Can you realistically maintain IVA payments?
• Are there other debt solutions available to you?

There may also be alternatives to both an IVA and bankruptcy, including a Debt Relief Order, if you meet the eligibility requirements, or other forms of debt advice.

The best solution isn't necessarily the one that writes off the most debt or finishes the quickest. It is the one that is appropriate and sustainable for your circumstances.

IVA vs bankruptcy: frequently asked questions

Sources and Further Information

GOV.UK – IVA Protocol 2025

GOV.UK – Key Facts: Protocol Individual Voluntary Arrangements

Insolvency Service – What you need to know about IVAs

MoneyHelper – What is an Individual Voluntary Arrangement?