Would an IVA be suitable for me?
If you are struggling with a high level of unsecured debt that you can’t afford to repay, but you can commit to making regular reduced monthly payments, then an IVA (Individual Voluntary Arrangement) could be suitable for you.
IVAs are a formal form of insolvency. They are designed to help you clear your debts – if you can make regular payments for the duration of your IVA (in most cases, in 5 years), any remaining unsecured debt will be written off when it comes to a successful conclusion. However, an IVA can’t go ahead unless voting creditors accounting for 75% of your debt accept the terms set out in the IVA Proposal which your Insolvency Practitioner (IP) will draw up with your help.
An IVA is often seen as a preferable alternative to bankruptcy. In part, this is because an IVA is extremely unlikely to force the sale of your home, while bankruptcy is more or less certain to.
Before entering an IVA – or any debt solution for that matter – it is important that you understand the advantages and disadvantages. To help you decide whether you’d like to discuss it with a professional debt adviser and find out more, here are a few of the ‘pros and cons’.
Advantages
- When you start an IVA, all interest on your debt will be frozen.
- An IVA is a fixed, formal agreement. This means that once the IVA has begun, your creditors can’t change the terms of the agreement, or back out altogether.
- Your payments to the IVA will be based on what you can actually afford every month (after your essential expenditure). You will, in most cases, make these payments for 5 years. When the IVA comes to a successful conclusion, any outstanding unsecured debt will be written off.
Disadvantages
- If you enter an IVA, you will end up repaying more of your debt than you would have done if you had chosen bankruptcy.
- An IVA usually lasts for 5 years, and will stay on your credit report for one year after completion – which could make further credit harder and/or more expensive to obtain. If you choose bankruptcy, you may be discharged after 12 months – although it will remain on your credit report for 6 years, and you might be asked to state if you have ever been made bankrupt (even if you apply for credit many years in the future).
- As a legally binding agreement, an IVA would not be appropriate for someone who couldn’t commit to making the payments for the specified period of time – if the IVA failed in the middle, they would have to look for another way of addressing their debt problems.
