In 2005, over 20,000 people in the UK avoided bankruptcy and succeeded in clearing their debts. This article discusses how they were able to do so and why the 15,389 people who filed for bankruptcy at the beginning of this year should have checked out the alternatives first.

In 1986, the government introduced a scheme called an Individual Voluntary Arrangement, or IVA for short. IVAs were designed to give people a legitimate alternative to bankruptcy.

The government understood that although bankruptcy had numerous disadvantages attached to it, for many debtors it seemed to be the only option. It therefore set up IVAs to give people a way to both avoid bankruptcy and clear their debts.

An IVA is a formal and private arrangement between a debtor and his/her creditors. As a result, there is no stigma attached to an IVA in the way there is with bankruptcy because no-one else needs to know about it.

If an IVA is agreed, interest on the debts frozen. This is very different to a debt management plan which many people set up as a way of trying to avoid bankruptcy. With a debt management plan, interest can continue to accrue on your debts even when the plan is in place.

An IVA allows debtors to pay off their debts via affordable monthly repayments over a five year period. These can be as low as