There are advantages and disadvantages to an IVA. So its dependent on your personal circumstances whether IVAs good or bad. Check out what they are if you want to know whether this solution is appropriate for you.
If you’re unclear about whether Individual Voluntary Arrangements (IVAs) are a good or bad thing, we’ve got the answers. At the end of this article, you’ll know what an IVA is and whether it’s right for your situation. As well as other debt solutions if available.
What is an Individual Voluntary Arrangement?
An IVA may be the solution for you if your unaffordable debt has become a problem in your life.
An IVA is a legal agreement you enter into with your creditors to pay off your debts at a lower rate over a specified length of time. At the conclusion of the IVA, any outstanding debts are written off.
An IVA must be done through a licensed insolvency practitioner.
An IVA is a formal solution that allows you to make lower monthly payments toward your unsecured debts.
Although IVAs are not available in Scotland, Scots can take advantage of a similar solution called a Trust Deed.
The fact is that an IVA has both advantages and disadvantages, just like any solution. Let’s look at the benefits of this solution as well as the reasons why someone would choose to enter into an IVA to address their financial difficulties.
The good points
More affordable payments. A primary benefit to starting an IVA is that your creditors will expect less money from you monthly. Rather than continuing with the agreed-upon payments, your debt advisor will figure out new instalments depending on what you’re actually able to pay every month.
This should provide you with much-needed peace of mind and put a stop to your anxiety about whether or not you can afford your obligations.
Debt is written off. If your IVA is successful, the remaining unsecured debt would be gone at the finish of the plan. This would then enable you to have a clean slate financially. The funds that are no longer going into the IVA can go towards anything else of your choosing because you wouldn’t have those debts stressing you out anymore.
Legal Protection. The IVA is a legally binding agreement for both you and your creditors, meaning they cannot abruptly decide to stop accepting the lower payments. Additionally, it halts any legal action against you that could be taken to recover the debts.
Your house won’t be at risk. If you start an IVA, you won’t have to sell your house because you would if you filed for bankruptcy.
Simpler payments. You may save time and money by making one payment to satisfy all of your debts at once rather than having to manage numerous debt payments to several creditors each month. The monthly payment is much easier to keep track of, so managing your finances should be less complicated and stressful.
The downsides
Damage to your credit history. An IVA will damage your credit rating like any other debt solution would. The lower payments you make mean that you are not keeping up with the agreed-upon terms with your creditors, and it will show on your credit file for six years after the date of inception. In the future, this means that it will be more difficult or expensive to take out loans. However, if you think about it, if you’re already defaulting on debts before considering a debt solution then chances are high that your credit score is probably damaged already.
It won’t take care of secured debts. Usually, people include all of their unsecured debts in their IVA. An IVA can’t help you with secured debt, but it will be easier to afford your secured debt because you’ll be paying less towards unsecured ones.
Releasing equity. If you enter into an IVA, though you won’t have to sell your home, you will need to try and release equity. This typically occurs six months before the end of the IVA but would never be more than 85% of your house’s value. If remortgaging is not possible (a quite common occurrence), then your IVA could be extended for up to another 12 months so additional payments can be made.
The Insolvency Register. Starting an IVA will add your name to the Insolvency Register, which is a public list of everyone who is unable to pay their debts. The Register helps creditors and credit reference agencies keep track of people who owe money.
Please note there are also IVA fees but these are taken from funds you pay in, not in addition.
Is it right for me?
In other words, an IVA is only beneficial if it suits your particular situation; otherwise, there might be another debt solution that would serve you better. For example, if your goal is to pay off all debts and you can afford to make a monthly contribution to each one – albeit not as much as what you’re currently paying per month – a Debt Management Plan might be more advantageous than an IVA.
On the other side, if you can’t afford to pay anything toward your debts, bankruptcy or a DRO may be a better option.
If you’re struggling with debts, contact us to find out about a wide range of other debt solutions that help people deal with their debts and get on with living their life.
Pick up the phone and call us free on 0800 169 1536 to speak with one of our fully trained advisors for free advice. They will take the time to listen to you and learn about your debt, your life, and what you hope to achieve. Our team is empathetic to your situation and will work with you find a solution that meets YOUR unique needs–not anyone else’s.
Call us today on 0800 169 1536 for confidential, no-obligation debt advice. Or you can complete and submit our online Debt Help form and we’ll call you back.
Face-to-face support is available but if you would like to have a debt advice conversation through WhatsApp contact us on 07762 145 581
The government has an article on debt solutions here.
