How to use an IVA as a Debt Solution

Debt Advice and Support in the UK Today

There are an increasing number of people who feel they've become trapped under the burden of debts and this number simply keeps on increasing as time goes on. If people with debt problems do not find debt solutions immediately, their finances and credit rating may eventually start to deteriorate. The possibility of being forced onto the brink of a debt crisis leading to bankruptcy becomes even more likely to occur as people see their debts pile up.

Those who may be suffering from large debt problems which may be getting worse may think there is not way out for them but there are debt solutions for you to choose from, for example, many seek iva advice, to help get them out of their current predicament.

What Is An IVA?

The IVA or Individual Voluntary Arrangement was introduced by the UK government in 1986 as a solution for those who may be having serious debt problems as an alternative to bankruptcy. It typically lasts for five years, and is a legally binding agreement, between you and your creditors (people who you owe money to). It's not suitable for everyone and it's important that you recognise if they are suited to your needs and we will only suggest an IVA is suitable if it is right in your own particular circumstances, so you should get the right iva advice.

Whilst this type of iva help may well reduce the amount you pay back to creditors, it's unlikely that this will be as high as 90%. What happens in reality is an IVA advisor (or licensed insolvency practitioner) will help both you and your creditors reach an agreement, by taking into account how much money you could afford in monthly repaymnents, after considering your living costs. How much debt is actually written off really depends on your personal circumstances.

IVA As A Debt Solution

As a legitimate solution that will enable you to handle your debts, some may say that an IVA is one of the best ways to avoid bankruptcy. You do of course need to ask yourself or seek iva advice with the help of an insolvency practitioner. As it's a legally binding contract with your creditors for typically five years, you need to make sure it's right for you before agreeing to it. For example, can you wait for up to 5 years so you can settle your debts and regain control of your finances, or is it important that you do it sooner? How much can is realistic monthly payment for you, and do you have sufficent income to support yourself and make these payemnts?

How Insolvency Practitioners Work

For an individual voluntary arrangement, only a registered insolvency practitioner can offer the right iva help so you can successully apply, by taking a closer look at your income, total amount of your credit, daily expenses, and priority bills.

After the insolvency practitioner has studied your financial condition, and offered you the right iva advice, they will make a proposal for your creditors to agree to. The total monthly payments that must be paid for a (typical) five year term will be based on your current financial capability.

The insolvency practitioner will set up a meeting for your creditors to make sure that at least 75% of them agree to your proposal. If agreed, the remaining 25% of the creditors who didn't agree will still be legally bound by the proposal and must agree.

After approval, you don't have to deal directly with your creditors anymore. This means that as long as you continue to pay the agreed monthly sum for five years or whatever the iva term is, the creditors have no right to pursue to for the debt owed. By sticking to the term, your debts can be written off.

The Advantages of an IVA

• Part of your debt will be written off (50% to 60% typically)
• Debt interest and other fees are stopped
• You can still keep your home (but you'll be required to release equity to pay off your debt).
• Your creditors will be prohibited from taking other enforcement action, e.g. petitioning for your bankruptcy
• By repaying what is owed, you can be back with your finances after five years

The Disadvantages of an IVA

• You must release your home's equity so you can to repay your debts
• You must maintain your repayments for a minimum of 5 years or risk bankruptcy (if you've paid any fees up to that point, then these will not be recoverable)
• Your payments may go up, for instance, if your expenses decrease or your income increases within the 5 years
• For a period of 6 years from the IVA start date, the IVA will affect your credit score (this is an important consideration for anyone seeking iva advice as many take the view of resolving their existing debt problems as being much more important than being able to get extar credit over the next 6 years).

In Summary

It’s important to take note that if you benefit from any significant windfall within your IVA's term (like winning the lottery, receiving accident compensation or your home's equity rising) and as a result can pay off your debts in full, then your creditors may expect you to meet the IVA fees on top of your original debt.

Whether you choose a commercial organisation or charity, the same rules apply, but its still important that you understand there are companies who charge part of their fees upfront. You're risking losing the money you've already paid by using a company which charges fees before your creditors have agreed to your IVA proposal.

If you need debt or iva advice, there's no need for you to book an appointment, our advisors are available Monday to Friday.

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