IVAs and bankruptcy ‘a middle class issue’

Individual voluntary arrangements (IVAs) and bankruptcy are increasingly a financial fate being faced by middle class people, an expert has said.

Head of consumer finance at lovemoney.com Ed Bowsher explained there was demographic shift in the kind of people becoming insolvent in 2010, with an overall dip in the tally of people taking such a step with their finances.

He noted: “This was largely because insolvencies fell amongst the most disadvantaged sections of society – for example people on low incomes who rent small flats from local councils or housing associations.”

But this was not the whole story, Mr Bowsher added, stating: “However, insolvencies rose amongst married middle-class Brits.”

Those in this group who are facing insolvency may wonder whether bankruptcy or an IVA is the best option.

The former will involve clearing all debts but also being unable to take out credit for several years, barring from holding company directorships and public disclosure, as it can be reported in the local press and will automatically be recorded in the London Gazette.

An IVA will mean still paying back some of the debt, but it will be a reduced amount over a period of up to five years, with anything left at the end of that period being written off.

While this will still leave a mark on a credit rating, it will not be as severe as that resulting from bankruptcy.

An IVA is also a confidential agreement, so as well as avoiding the stigma of bankruptcy, the problem can be kept entirely secret.

Mr Bowsher’s comments follow the publication of an Experian report identifying married people with children living in suburbia as being the most vulnerable to insolvency.

By James Francis