The deep worldwide recession has forced many people into situations in which they can no longer manage their debts. In such cases, there are two options available in the United Kingdom – to file for bankruptcy, or to seek an Individual Voluntary Arrangement (IVA). A bankruptcy is a legal action that must be approved by the court declaring that you are unable to repay your debts. An IVA is an arrangement, made through an IVA intermediary, in which the borrower and creditor agree on a new repayment plan that freezes interest on the debt. When you declare bankruptcy, you may be forced to sell your house and other important property. With an IVA the debtors maintain possession of all assets unless they fail to meet their new repayment obligations. You will need to pay court and bankruptcy service costs upfront when filing for a bankruptcy order. The court cost for a bankruptcy is £150 and if you include insolvency service fees, you will pay around £500. Fees for an IVA service will vary according to various factors, but you will need to offset any savings on your debt payment by this amount. If you happen to default on your IVA early, most of the money paid would have gone toward the IVA firm fees. So you would have made little dent in your overall debt, which the creditor can again pursue. Note that a bankruptcy represents a “new start” and clears away all your debts. However, if you are well employed, you still may be required to make monthly payments under an income payments order. During the bankruptcy period, which last for one year, if there is an unexpected favorable change in your financial situation you may be required to repay the debt. A bankruptcy order should not affect secured loans, auto loans or hire purchase contracts. However, your credit rating may be hurt for up to 6 years. If you have a pension, it may be attached to the bankruptcy in certain cases. After a bankruptcy it will be difficult if not impossible to obtain a credit card or loan including a mortgage. With an IVA you will normally have about five years to make all payments in the arrangement. The agreement gives you legal protection against any future action by your creditors so long as you meet the payment schedule. The Individual Voluntary Arrangement does not cover secured debts and certain other debts such as fines. Once you complete your IVA payments, your credit rating is cleared to an extent as you have showed responsibility in repaying your debt, at least partially. During the IVA payment period though, no credit may be obtained except for utilities. The IVA is listed on your credit file as is the successful completion of an IVA. Likewise failure to meet the requirements of the contract will be included in your credit record. However, an IVA is not published in a newspaper as is the case with a bankruptcy. Because of the public nature of a bankruptcy, there is an added stigma as compared to an IVA. Some employers will not hire individuals who have declared bankruptcy. From a purely monetary standpoint, the choice between an IVA and bankruptcy will depend on one’s specific circumstances. For example, if there is some doubt about your ability to fully make the payments in an IVA, then you should strongly consider a bankruptcy. Otherwise, you may end up paying IVA fees and still end up in bankruptcy. An IVA is attractive for those who cannot afford the stigma of a bankruptcy on their record. If you are still unsure, consider consulting with a financial advisor who will study all the aspects of your case and offer a recommendation. Latest figures showrecord number of people in the UK filed for Bankruptcy between April -June 2009, 33000 in total