IVA

An IVA or Individual Voluntary Arrangement is where an individual agrees with their lenders to pay certain amounts in order to pay off their debts. IVAs are usually only available to those who cannot afford to keep up with the initial terms of their loans. If you can keep up with your current payments then you would not be able to avail of an IVA.

Anyone who takes on an IVA will be assigned an IVA supervisor who will help them to pay their creditors each month. The individual pays the IVA supervisor a certain agreed amount each month and the IVA supervisor will distribute this among the creditors.

The major benefit of successfully applying for an IVA is that you can have your monthly payments lowered so that it is affordable to you. You will have five years to pay off whatever you owe and it may mean that you end up paying less to creditors in the long run because they will usually freeze interest and they may even write off some of your debt. So for those struggling with debt, an IVA can be a godsend.

However, even though an IVA can help to address your debt over a specified period of time, there is a downside to it. It will only be successful if there is a majority among your creditors in favour of it. Plus it is considered to be one stop short of bankruptcy. The amount that the individual has to pay each month will not mean that he has much cash left over.

The main aim of IVAs is to help with paying off any unsecured debt that you have first. It will not incorporate amounts you owe for mortgage repayments and arrears on bills etc although by helping to reduce the amounts you have to pay for your unsecured debt, you will be able to focus on paying off your other debts too.

By applying for an IVA, you must be prepared to make the agreed payment for the duration of the term and you must be aware that it could have a negative impact on your credit rating. So although it may serve to get you off the hook temporarily, you may want to think about addressing your debt problems another way if possible. An IVA should really only be considered if you have more than £12,000 of debt and wish to avoid bankruptcy.

IVA Pros and Cons

If you’re considering an IVA ensure you make an informed decision by learning more about the advantages and disadvantages of an IVA. If you have any further questions call us today on 0800 988 4045.

• Open to a range of people - private individuals on their own or with a partner and sole traders can all qualify for an IVA. Also people in certain positions and professions who are not allowed to be made bankrupt can also take an IVA.
• An IVA is legally binding which means you will be protected from further action from your creditors.
• Unlike bankruptcy, you can safeguard your property from unsecured creditors.
• An IVA runs for a fixed period (usually for five years), but sometimes less if people’s circumstances change for the better.
• In an IVA all you pay is the amount you can realistically afford, each month for the period of your arrangement (usually 60 months), and that is literally all you have to pay as long as you keep up the payments. In return, your creditors agree to write off the debt you can’t afford to repay and pay our fee out of the payments you have made to them.
• You’re in control of your finances as you’re allowed to open a regular bank account with no overdraft facility.
• Payments are calculated to be affordable; whilst in an IVA your home is protected from legal action and unsecured creditors cannot force you to sell it.

• If your total unsecured debt (e.g. credit cards, loans, etc but excluding mortgage if you have one) is less than £12,000 an IVA may be unlikely to be suitable.
• Your creditors can resume collection actions if you fail to keep to the terms of the IVA.
• If you have equity in your house (i.e. it is worth more than you paid for it) you will have to make best endeavours to remortgage towards the end of your IVA and release funds to your creditors. Don’t forget, your creditors are still writing off the debt you can’t afford to repay and the alternative could well be bankruptcy whereby you could lose your property altogether.
• The IVA normally stays on your credit history for one year after your IVA ends. This may affect your credit rating although some lenders view your proven ability to make regular payments over 60 months favourably.
• In approximately 5% of cases an IVA runs for six years.
• No borrowing is allowed during your IVA.
• IVA fees come out of the payments you make to us. If the IVA fails, your creditors will be able to pursue you for the full outstanding balance and no credit will be given in relation to any payments for fees within the IVA. Failure could also result in bankruptcy.
• If you have equity in your home you may be required to release it to your creditors. This is usually achieved by increasing the level of your mortgage towards the end of your IVA. If this is not possible you are likely to be required to extend your IVA payments by up to an extra 12 months.

If you think an IVA may be right for you or want to find out about other solutions call us on 0800 988 4045.