When you are struggling to make the pennies stretch far enough, it can be tempting to consider calling one of the firms that promise to write off the majority of your debts. However, the ‘loophole’ that many of the advertisements talk about is a legitimate solution, known as an Individual Voluntary Arrangement (IVA), for those unable to meet their commitments.
An IVA can be the right solution for some people but it is a legally binding contract which has serious implications and is not something which should be taken lightly. In order to decide whether an IVA is right for you, it’s important to understand a few key facts.
What It Isn’t
Firstly, an IVA is not simply a way to ‘get out of’ paying off your debts. It is a viable alternative to bankruptcy when you simply cannot continue struggling to meet your commitments. And as with bankruptcy, a black mark is entered on your credit history which can mean that you will find it difficult to obtain credit elsewhere for a considerable period of time. However, if you have been unable to pay your debts, borrowing more money should be the last thing you are planning on.
An IVA is not a debt-management plan, which is no more than an informal agreement to repay some or all of what you owe. An IVA involves the courts and cannot be completed without help from an Insolvency Practitioner (IP). It is always important to get advice from an IVA company before deciding whether to go ahead.
If you proceed, the IP will negotiate with your creditors to persuade them to agree to the deal. 75% of your debt needs to be approved for the IVA to be put in place. If you get this level of agreement then other creditors who have not agreed are forced to accede.
What It Is
Interest is frozen once an IVA has been agreed and a tough assessment will be completed to ascertain what you can afford to pay. Luxuries such as holidays and gym membership will not be allotted any money and you have to commit to sticking to the budget for at least five years. After this time, the debt is usually wiped out.
Despite the claims being made by many companies advertising IVA services, it is not typical to have 90% of your debts erased. You can expect to end up paying around 40p for every £1 you owe – anything less than this and your creditors are unlikely to agree to it.
As a rule of thumb, to arrange an IVA you should have unsecured debts of at least £20,000. Mortgages, rent, government fines, council tax and child maintenance cannot be included in an IVA, nor can any other kind of secured debt. The most common debts include personal loans, credit cards, overdrafts and store cards.
The biggest advantage that an IVA provides is the ability to hold on to key assets such as your house and car. Although creditors can force you to remortgage to release equity (if you have any) they cannot insist you sell your home. And once the debts have been cleared, the restrictions are less prohibitive than if you had been made bankrupt.
For anyone troubled by significant and unmanageable debts, when the threat of court action is a real possibility, an IVA may offer an alternative route to bankruptcy. However, it is not without consequences and it never a decision which should be taken without exploring other avenues first.
This guest post was written on behalf of Saul Malpass who is currently writing on behalf of IVA Expert who are currently trying to promote content throughout the web informing & educating people on how to avoid bankruptcy & stay out of debt