Bankruptcy is usually quicker and cheaper at the outset, with discharge normally after 12 months, but the trustee takes control of assets and may sell the home or close the business. An IVA usually lasts five or six years and costs more over its life, but under the standard protocol the home does not have to be sold and the debtor keeps running their business. Which is better depends on home equity, spare income and whether the person needs to keep trading or act as a director.

How do the two routes work?

An individual voluntary arrangement is a contract with creditors set up and supervised by a licensed insolvency practitioner. GOV.UK explains that the practitioner works out what the debtor can afford and how long the arrangement lasts, then puts the proposal to creditors. Under rule 15.34(6) of the Insolvency (England and Wales) Rules 2016 the proposal is approved when three quarters or more by value of those responding vote in favour, unless more than half by value of the creditors who are not associates of the debtor vote against. Once approved it binds all the creditors who were entitled to vote, including those who voted against. The process in detail is in individual voluntary arrangements.

Bankruptcy needs no creditor vote. A debtor applies online, an Insolvency Service adjudicator decides, usually within 28 days, and the case passes to the official receiver. Property passes to a trustee, who sells what can be sold and pays creditors. See personal bankruptcy basics.

A third option, a debt relief order, is only open to people with debts under £50,000, little spare income and few assets. GOV.UK lists a DRO as unavailable to homeowners, so it rarely competes with an IVA for a sole trader with property.

Which costs more?

Bankruptcy has a visible upfront fee. GOV.UK states the application costs £680. After that, the trustee uses money from selling assets and any spare income to pay the costs of the bankruptcy before creditors receive anything.

An IVA has no upfront fee under the Insolvency Service’s IVA Protocol 2025. The protocol key facts say the practitioner’s fee is built into the monthly payments, that it must be explained before the debtor agrees, and that the first payments typically go more towards the fee than the debts. GOV.UK describes the usual charges as a set up fee and a handling fee on each payment. Over five or six years the total cost of an IVA is usually higher in cash terms than the bankruptcy fee, but the debtor keeps their assets in return.

How long does each last?

Point Bankruptcy Protocol IVA
Main term Discharge after one year (section 279(1)) 60 months, or 72 months with home equity of £10,000 or more
Income contributions Income payments agreement of up to 3 years Monthly payments for the whole term
Public register Individual Insolvency Register, updated within 3 months of discharge On the register until 3 months after the IVA ends
Credit file 6 years from the bankruptcy date 6 years from the IVA start date

GOV.UK adds that a bankrupt’s name usually stays for five years on a charges register that mortgage lenders can search. Bankruptcy can also run longer than a year: the court can suspend discharge under section 279(3) where the bankrupt does not cooperate, and dishonest or careless conduct can lead to bankruptcy restrictions orders and undertakings lasting up to 15 years.

What happens to the family home?

In bankruptcy the trustee looks at the equity left after the mortgage. GOV.UK says that if the equity is more than £1,000 the trustee can sell the property or apply for a charging order fixing what the trustee will receive on a later sale. Under section 283A the bankrupt’s interest in the home returns to them after three years unless the trustee has realised it, applied for sale, possession or a charge, or agreed terms with the bankrupt. A partner or relative may be able to buy out the trustee’s interest.

The IVA Protocol takes a different approach. The key facts state that the debtor will not need to sell or use the equity in their home, but if the equity is £10,000 or more the payments last six years instead of five to compensate creditors. The protocol measures equity as 85% of the property value less secured borrowing, and treats very high equity as a sign that a protocol IVA may not be suitable. A bespoke IVA can be drafted differently.

What does each mean for running a business?

For a sole trader bankruptcy is disruptive. GOV.UK warns that the business is very likely to close unless the trustee decides to keep it open, though tools, vehicles and equipment needed for work can usually be kept unless they are worth more than a reasonable replacement. A bankrupt cannot borrow more than £500 without disclosing the bankruptcy, must tell people they deal with the name in which they were made bankrupt, and under section 11 of the Company Directors Disqualification Act 1986 cannot act as a director or be involved in forming or managing a company without the court’s permission.

An IVA is lighter. HMRC’s insolvency practitioner handbook describes a voluntary arrangement as an alternative to bankruptcy without the attached restrictions, with the trader usually remaining responsible for the business. Section 11 does not list an IVA among the circumstances that bar someone from acting as a director. Company articles still need checking: paragraph 18(c) of the model articles for private companies ends a director’s appointment when a composition is made with their creditors generally, which can catch an IVA, so the company may need to reappoint the director or amend its articles. The protocol is designed for consumers and asks the practitioner to note in the proposal if the debtor is self employed or has uneven income; a trader with business debts may need a bespoke IVA instead.

What happens if it goes wrong?

An IVA depends on the debtor keeping up payments for years. GOV.UK says the practitioner can cancel the IVA if payments stop and can make the debtor bankrupt; section 264(1)(c) of the Insolvency Act 1986 allows the supervisor or a bound creditor to petition. The protocol key facts warn that if an IVA is cancelled creditors can claim interest and charges frozen during the arrangement, and nothing already paid is refunded. Because early payments are weighted towards fees, a failed IVA can leave the debtor having paid a lot and cleared little.

Bankruptcy is harder to fail, because most of the process happens to the debtor rather than depending on them. The main risks are non cooperation, which can suspend discharge, and an income payments agreement continuing after discharge.

The two routes can also connect. Section 253(3) lets an undischarged bankrupt propose an IVA, and GOV.UK lists an IVA as a ground for applying to cancel a bankruptcy.

How might the comparison look?

Illustration only. Priya is a self employed graphic designer with £45,000 of unsecured debts, a steady income leaving £400 a month spare, and £40,000 of equity in a house she owns with her partner.

  • Bankruptcy: £680 fee, discharge after a year, but the trustee will deal with her share of the equity, and her spare income may be taken under an income payments agreement for up to three years. Her business may continue only if she keeps within the restrictions.
  • Protocol IVA: no upfront fee, payments of around £400 a month for 72 months because her equity is over £10,000, no requirement to sell the house, and no statutory bar on later forming a limited company, provided the articles of any company she joins do not remove her.

Priya would probably prefer an IVA if her income is reliable. If her income were uncertain, the risk of the IVA failing after several years of fees would weigh more heavily.

What mistakes are common?

  • Choosing an IVA on an optimistic budget. The protocol requires payments to be sustainable without hardship, and an IVA that fails in year three usually ends in bankruptcy anyway.
  • Assuming bankruptcy means losing the home immediately. The trustee may agree a sale to a partner, and the three year rule in section 283A can return the interest if nothing is done.
  • Overlooking director roles. Under paragraph 18(b) of the model articles a bankruptcy order ends existing directorships, and section 11 blocks new ones without permission, which can be decisive for a business owner.
  • Forgetting tax debts. For a tax only problem an HMRC time to pay arrangement may be enough without any insolvency procedure.
  • Taking advice from an introducer who is not authorised. The protocol expects referrers to be FCA authorised for debt counselling.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.