Is an IVA an easy way out of debt?

An Individual Voluntary Arrangement (IVA) is one of many solutions for people who are in debt and are struggling to make payments. If you’re at the point where you owe so much money that you are struggling to pay even the interest on them, then an IVA is a solution that you may want to consider. An IVA is a legally binding agreement between the debtor and their creditors—this should not be confused with a debt management plan, which is only a set of recommended guidelines and is not legally binding. To enter into an IVA or arrange any other kind of debt solution, it’s best to contact an Insolvency Practitioner for expert advice.

Assessing your Eligibility

To be eligible for an IVA, you must meet the following criteria:

•Have at least ₤15,000 in unsecured debt (this means your mortgage cannot be included in the debt total)
•Have three or more creditors
•Can afford to pay at least ₤200 per month towards your debts

The Advantages of an IVA

An IVA has several advantages which make it an ideal solution for anyone who meets the criteria. Your home is not at risk except under very specific circumstances—such as if you fail to keep up with your agreed-upon payments. You can legally write off a large proportion of your debt total—up to 75%— and unlike declaring bankruptcy, your financial problems can be kept completely confidential. This means that your professional status does not change—you can still own and operate a business, and hold public office. You can also have the interest portion of your debts frozen—so once you have entered into an IVA your interest will not continue to increase. This makes it much easier to pay off your debts and gives you peace of mind in knowing that the amount you know will only get smaller.

Once you enter into an IVA you’ll be free from letters and phone calls from creditors, and will be safe from the possibility of court action against you as well. Lastly, your debt is classed as completely settled five years after you enter into the agreement. While this is longer than the one to three years that being discharged from bankruptcy takes, you have some significant advantages to make up for the longer period of time you’ll spend paying off your debt.

The Disadvantages of an IVA

The most significant disadvantage is of course that you must enter into an agreement which is legally binding for five years. And while any remaining debt you have is written off after five years, if you should receive a windfall or a salary increase during the five years, you are legally obligated to pay the extra money you receive to your creditors. Contrast this to bankruptcy, where the same situation applies—however you are typically discharged from bankruptcy after only one year as opposed to five.

Another important point is that while your home cannot be repossessed, you may be required to release some of the equity in your home to help pay some of the outstanding debt total. If this occurs it is typically done towards the end of the five year period.

Finally, you must keep up with your payments without fail—your creditors can legally take action against you if you fail to keep up as stipulated in the agreement. This may result in bankruptcy and your home may be at risk of repossession unless this possibility is specifically excluded in your IVA.