Do you feel caught in a debt trap, like there is nowhere left for you to turn when it comes to your finances and credit? Many people have felt like that at one point or another in their life. The important thing to know is that you have options.
Debt relief orders and bankruptcy are some of them. And another viable option is an individual voluntary arrangement. When you use it in the correct circumstances, it can be a great option to help you settle your debt and move on with your life.
This article is going to serve as a quick guide to setting up an IVA, as well as how they work.
However, it’s important to note that this article in no way constitutes debt or financial advice. When pursuing a bankruptcy or IVA solution, it’s essential to talk with a qualified professional.
Without further ado, let’s see if we can demystify IVAs for you a little bit.
What Is An Individual Voluntary Arrangement?
Think of an IVA as a “payment plan” that’s negotiated between you and your creditors. The goal of the agreement is to set up a way for you to pay back your debts over a period of time. The IVA is legally binding, so it’s important to do your research before entering into one with your creditors.
What Do I Need To Know?
As with all contracts, there are some things you should know and questions you should ask before entering into an IVA.
One of the first things to keep in mind is that the firms that can help you set up an IVA are professionals. They have years of knowledge and expertise to help walk you through the IVA process.
IVAs are a valuable tool, and working with the right IVA firm can help you to get your life back on track.
Becomedebtfree.com has been structuring IVAs for clients for years. We have hundreds of stellar reviews, we offer budget planning, and have tons of other resources to help make your IVA journey as smooth as possible.
The IVA Process
The first step of the process is to contact an IVA firm, which will assess your debt situation and discuss all possible solutions with you. We are officially ranked one of the top debt relief companies in the UK and we’ve helped thousands of people become debt free across the UK.
The purpose of the interim order is to stop your creditors from taking action against you while you and your Insolvency Practitioner work on your IVA.
Some IPs may not file for an interim order. That’s not out of the ordinary. Interim orders are rare and only issued in special circumstances. Most of the time, your IP can file to have any court order taken against you dismissed.
This is an important part of the process. It prevents your creditors from pursuing a court order against you. It can even stop them from attempting to make you bankrupt.
There would need to be proof that you and your IP are working on an IVA.
Discuss Finances and Payments
The next step would be for you and your IP to discuss your finances. This is where you would need to produce bank statements, pay stubs, etc., to prove things like income and debt-to-income ratio. These are all things creditors want to see to ensure you can pay back your debts on time.
Your creditors may include some of your assets in the equation to help you pay back your debts. They may request that you sell a car or other large vehicles to raise more money to pay back your debt.
After taking all of that information into account, your IP will negotiate on your behalf to develop an appropriate repayment amount. This payment is usually made monthly for five or six years.
IPs generally suggest offering to repay as much as you can afford at the current time. If you don’t, there is a chance that your creditors may not accept the proposal. This plays into why so many IVAs fail.
Write A Proposal
You and your IP are doing whatever you can to hold off court orders from creditors at this point in the process. You’re also discussing your current financial situation.
Once all of that is done, it’s time for you and your IP to draw up a proposal. This isn’t the official agreement. Keep in mind, you’re in a negotiation with your creditors.
This is the first draft of the terms of your IVA. From there, it’s up to your creditors to decide if the proposal works for them or not.
The Creditors’ Decision
The final step is to wait for the creditors to decide on your proposal. At this point, they can either accept or reject what you and your IP are proposing.
It binds you and all of your creditors to the terms within the proposal. This includes any creditors who didn’t vote in favour of the proposal.
Is an IVA Right For You?
It’s important to figure out if this is your best move before moving forward with an IVA. To do that, there are a few things you’re going to want to ask yourself. There are also some documents you’ll want to get a hold of to make the process go as smoothly as possible.
Do You Own Real Estate?
If you own a house with equity, an IVA will help you to protect that asset. But all of that depends on how much equity you have in your house. The creditors will take into account the primary mortgage, as well as any secured loans you have.
Do You Have A Car Payment?
If you currently have a car payment, you may want to discuss this with your IP. If you are financing a car during your IVA, it may cause an issue. It can cause an issue getting your IVA started or during the IVA itself.
Once you go through the IVA, it drops your credit rating significantly. This may not look good in the eyes of the institution financing your car.
It’s important to research what type of car financing you have and which types affect an IVA.
Tally Your Debts
It’s a good idea to get a collection of all of your debts together. Make sure you don’t leave anything out. If there’s any doubt as to whether to include it or not, include it.
If it’s unnecessary, your IP can advise you of that later, but it can’t hurt to be on the safe side. Your IVA can include anything from personal loans, credit card debt, payday loans, store cards, bank overdrafts, and catalog debt.
What’s beautiful about IVAs is the amount of debt they allow you to write off. Clients can typically write off around 90% of their debt when going through the IVA process.
Verifying Your Income
If you have a job that pays you a normal, steady wage, then your IVA shouldn’t be much of a problem. Where things get difficult is if you routinely work overtime, you work on commission, or you’ve gotten a recent pay raise.
If you receive any payment in a lump sum, your creditors may be able to take up to half of that lump sum payment under the terms of a standard IVA. This will not shorten the term of your individual voluntary arrangement.
To end an IVA early, you’ll have to be able to pay your outstanding repayment amount in full, plus the IVA firm’s fees.
How To Choose An IVA Firm
There are hundreds of options to choose from when deciding who should work on your IVA for you. You must choose the right one to maximise the benefit for yourself and your situation.
A competent firm will sit with you until you understand all of the terms of your IVA. They’ll also be compassionate to your situation. They deal with this every day, and they know it’s not easy.
Going through an IVA can bring up a lot of feelings of pain, guilt, and failure. The right firm will understand that and do whatever they can to help at every step of the way.
An important question to ask is who will administer your IVA. Many firms will negotiate your initial proposal and then hand you over to another firm for the five or six years in this agreement. That’s not the best situation to have.
Such firms are known to use illegal practices and mis-sell IVAs to earn commission.
Ideally, you want someone that was there from day one. Someone who understands the big picture of the situation and someone you can talk to should any problems arise.
You want a firm that’s going to handle your case with a personal touch. At become Debt Free
A Second Chance
An IVA could be a perfect second chance for you or another person in your life. An individual voluntary arrangement can help tackle a mountain of debt consolidation that you didn’t think was possible.
Make sure you talk to the right people and ask all the right questions before moving forward with this type of agreement.
If you think an IVA may be the solution for you, check if you qualify today. Our team of experts is here to help you navigate the process to apply for an IVA. We’re here to help and want to see you get back on your feet.