If you have debts that you simply can’t afford to repay, one option is an IVA (Individual Voluntary Arrangement). This is a formal agreement with your lenders in which you’ll repay as much of your debts as possible for an agreed period of time, after which your remaining debt will be written off.

Your payments on an IVA will be based on what you can afford after your essential costs have been covered. You’ll be expected to pay as much as you can for the duration of your IVA, so if your income increases, your payments may also increase.

IVAs have helped many thousands of people over the years, but like any debt solution, they’re not for everyone. Here’s a (fictional) example of someone who might benefit from an IVA.

IVA: a typical example
Mr Robertson is a graphic designer with debts of £21,000, who earns £1,500 a month. His essential outgoings come to around £1,750, including monthly debt repayments of £450.

This means he is falling £250 short every month, and failing to meet all of his debt repayments as a result. He needs to find a debt solution that can reduce his repayments to an affordable level.

Because he is a homeowner, he doesn’t want to petition for bankruptcy, as this could result in him losing his home. Instead, he opts for an IVA, which allows him to bring his total debt repayments down to £200 a month. This means his total outgoings are now below £1,500 again, and he is no longer struggling to meet all of his commitments.

He will now make regular monthly payments for five years, and on successful completion of the IVA his remaining debts will be written off.

Things to remember
Above is a simplified example of just one person who might qualify for an IVA. There is no strict amount of debt you must owe to qualify – it’s more a case of whether your debts can be repaid in full and whether or not an alternative debt solution is more appropriate for you. To qualify, you’ll need to demonstrate that you can’t afford to repay your debts within a reasonable period of time, and that you can commit to regular monthly payments (in most cases) for the duration of your IVA (usually five years).

Remember that an IVA is a big commitment that will leave you with very little money to spare – you’ll be fully focused on paying off as much of your debts as you can. It’ll also have a significant impact on your credit rating and your future ability to borrow.

But if you are really struggling, an IVA can be an effective way of clearing your unmanageable debts.

For more information on IVAs and other debt solutions visit http://www.thinkmoney.com/debt/IVA/.