IVA (Individual Voluntary Arrangement)
An IVA is a voluntary agreement between you and your creditors, i.e. the organisation to which you owe money, to pay off your debts with them. An IVA will normally last for five years and needs to be professionally set up by an authorised Insolvency Practitioner (IP), who will charge a fee.
During this five-year period, you will be expected to pay what you can afford outside of your agreed living costs.
Is An Individual Voluntary Arrangement Right For You?
This is an important question to consider. An IVA is a fairly straightforward way of repaying your unsecured debts in a formal and agreed way and over a fixed time period. Your IP will help you work out what you can afford to repay per month and they will also contact all your creditors to secure their agreement of the terms of your IVA, after which they will no longer be able to take you to court or make you bankrupt.
The IP will also work on your behalf to stop any interest charges or additional payments as part of the IVA. Of course, all this assistance comes at a price - Simple Financial Solutions can offer free advice on IVAs however if you proceed with this or any other form of Debt Management then you will have to pay for it (costs will vary depending on your circumstances).
Agreeing To An IVA - The Benefits
There are many reasons why agreeing to an IVA would make good sense. These include:
- As you only have to make one affordable payment per month, your overall debt can be managed more easily
- It is likely that a proportion of your unsecured debts will be written off
- Your creditors will be bound by the terms of the IVA - even if they don't agree with it
- All charges on your existing debit, i.e. interest and credit charges, will instantly cease
- You won't need to worry about further action being taken
- Five years is a reasonable and manageable length of time to have to repay the debt
- Once the IVA has run its course you will no longer owe anything to your creditors
Agreeing To An IVA - The Risks
Like all forms of debt management, there are some risks to consider. These include:
- Credit reference agencies will be able to see your IVA as it will be entered into a public register. This will affect your credit rating meaning it will be difficult to open up a new bank account, for example
- In some cases, upfront fees will need to be paid to your IP
- Any equity in your home will generally be released as part of your settlement
- Should you fail to abide by the terms and conditions of your Individual Voluntary Arrangement then your creditors can take further action, e.g. make you bankrupt
- Your creditors will be able to put a stop to any extravagant expenditure during your the term, such as a holiday or even a gym membership. Each form of expenditure will be considered on a case-by-case basis
- f the debtor has to re-mortgage the property to release the equity, his/her ability to obtain a mortgage may be restricted and is likely to be on less favourable terms. Where the debtor is unable to obtain a re-mortgage, the IVA often can be extended for up to 12 months. Creditors that hold 75% of the debt (by value and voting) must agree to the IVA. Only unsecured debts within the IVA may be written off at the end of the period and those not included will remain outstanding.
So What Now?
Deciding whether you wish to enter into an debt plan can be tricky, so you'll need expert help to figure out whether it is the right option for you. At Simple Financial Solutions our advisors will be able to talk you through your situation and plan your next step, whether it's an IVA or a more appropriate alternative.
If you'd like to find out more about Individual Voluntary Arrangements or other debt solutions, call us now on 0800 043 2027 for an initial discussion.