One question we receive frequently is “How will an IVA Impact my Life?” If you live in England, Northern Ireland, or Wales and are facing debt problems, one of the most popular debt solutions suggested to you is an Individual Voluntary Arrangement (IVA).
For many individuals grappling with unsecured debts, the road to financial freedom can seem daunting and near impossible. However, there are solutions designed to help you navigate these challenging circumstances, one of them being an Individual Voluntary Arrangement (IVA). This arrangement can assist with unsecured loans and debts, potentially avoiding bankruptcy.
An IVA is a legally binding agreement between you and your creditors, which provides a structured means to pay back your debts over a set period, typically 5 years with an agreed monthly payment. This arrangement is facilitated by a licensed Insolvency Practitioner who represents your interests and liaises with the creditors on your behalf.
Here at Become Debt Free, with our professional Insolvency Practitioner in Leeds is dedicated to offering you guidance and support in managing your debts. We understand that every individual’s circumstances are unique, and therefore, we strive to provide bespoke IVA solutions tailored to your personal needs and payments. With our help, you can regain control of your finances and start your journey towards becoming debt-free.
Don’t let debt rule your life. Contact us today at 0800 169 1536, or leave an enquiry on our website to discuss your options and see how an IVA can be the stepping-stone to a debt-free future.
Quick Links
Understanding IVA and Its Impact
When you enter an Individual Voluntary Arrangement (IVA), it’s vital to consider the short and long-term impacts it can have on your personal finances and credit rating. Seeking online debt advice and debt help can be beneficial when dealing with unsecured debts and debt payments. Additionally, understanding the financial association between an IVA and your credit rating is crucial.
Impact on Personal Finances
Upon entering an IVA, you’ll work with your Insolvency Practitioner to develop a reasonable monthly repayment plan. This is typically based on your disposable income, i.e., the income you have left after covering your essential living costs. This ensures that your unsecured debt repayments are affordable and sustainable over the term of the agreement.
One of the benefits of an IVA is that any unsecured debt remaining at the end of the agreed term are written off. However, during the term of the IVA, you will have to adhere strictly to your budget, and this might mean living frugally for several years.
Furthermore, if you have a lump sum of money, like a pension pot or equity in your property, you may be asked to introduce some or all of this into your IVA. This can affect your financial plans, particularly if you had other intentions for this money and not for debt payments.
Impact on Credit Rating
Entering an Individual Voluntary Arrangement (IVA) can have significant implications for your credit rating, especially if you have a substantial amount of unsecured debt such as credit cards. An IVA will be recorded on your credit file for six years from the start date of the arrangement, even if you successfully complete the IVA in a shorter period. This can affect your ability to secure future loans or engage in property trading due to the impact on your creditworthiness.
During the IVA term and for some time afterwards, you’ll likely find it more challenging to obtain credit. Even when credit becomes available, you may face higher interest rates due to the damage to your credit score. It’s also worth noting that your IVA will be recorded on the Individual Insolvency Register, a public record.
IVAs aren’t a decision to be made lightly, and it’s crucial to fully understand these impacts. However, with careful planning and commitment, an IVA can provide a realistic path to becoming debt free. At Become Debt Free, we can help you understand how an IVA might impact your personal circumstances. Don’t hesitate to contact us for advice and support. We offer advice regarding unsecured debts such as credit cards.
Pros and Cons of an IVA
As with any debt solution, an Individual Voluntary Arrangement (IVA) has both advantages and disadvantages. It’s essential to fully understand both sides before deciding if an IVA is the right route for you.
Pros of an IVA
1. Controlled Repayment Plan: An IVA is a structured payment plan tailored to your financial circumstances. Your monthly repayments are based on what you can realistically afford after essential living costs, providing some degree of financial certainty.
2. Protection from Legal Action: Once an IVA is in place, creditors can’t take legal action to recover the debt. This means no court judgements, no bailiffs knocking on your door, and no threats of bankruptcy.
3. Debt Write-off: At the end of the IVA period, typically five to six years, any remaining unsecured debt is written off. This provides a clear light at the end of the tunnel.
4. Fixed Term: Unlike some other debt solutions, an IVA has a fixed term. You know when it will end and can plan your financial future accordingly.
Cons of an IVA
1. Impact on Credit Rating: An IVA is recorded on your credit file for six years from the start date, which can make it harder to obtain credit during this time and potentially longer.
2. Living on a Tight Budget: Once your IVA monthly payments are determined, you’re expected to stick to a strict budget for the duration of the IVA, which can be a challenge.
3. Requirement to Release Equity: If you’re a homeowner, you may be required to release equity from your home to help repay your debts. If you can’t release equity, your IVA may be extended by 12 months.
4. Public Record: Your IVA is recorded on the Individual Insolvency Register, which is a public record.
With an IVA, you might also safeguard certain belongings from sale. If, for instance, you have a valuable car that’s crucial for your work, it may be possible to exclude this from the assets that could be sold to repay your debts.
In terms of cons, the available equity in your property may be a key concern. If you own your home, you may be required to remortgage it towards the end of the IVA term to release some of this equity. If remortgaging isn’t an option, the IVA could be extended by 12 months.
Moreover, while an IVA can provide some relief from debt payments, it may also require lifestyle adjustments. Your monthly budget will need to account for the IVA payments, which could mean cutting back in other areas. For example, if you typically spend a significant portion of your monthly cash flow on rent, you might need to consider moving to a more affordable property or negotiating lower rent to accommodate the IVA repayments each month.
Remember, each IVA is unique and the exact terms will be agreed upon by you and your creditors, based on your personal financial information. Consulting with an experienced insolvency practitioner can provide more clarity on what an IVA could mean for you.
Life After an IVA
Coming out of an Individual Voluntary Arrangement (IVA) can feel like a breath of fresh air. It’s the end of a long journey, and the prospect of a debt-free future can be exciting. However, it’s essential to be aware of the longer-term impacts of having an IVA and understand how it may affect your future financial prospects.
Long-Term Impacts of an IVA
1. Impact on Credit Rating: An IVA stays on your credit file for six years from the date it starts. Even after you’ve completed your IVA, this can affect your ability to get credit. Over time, the impact will lessen, and there are steps you can take to rebuild your credit rating.
2. Difficulty Getting a Mortgage: While you have an IVA on your credit file, it may be challenging to get a mortgage. Once the IVA has dropped off your credit file, you may find more mortgage lenders willing to consider your application, but it’s essential to demonstrate a good track record of managing your finances.
3. Your Spending Habits: One of the positives of going through an IVA is that it often forces you to re-evaluate your spending habits. This financial discipline can stand you in good stead for the future, helping you avoid falling back into debt.
Future Financial Prospects
The end of an IVA can often feel like a new start. Once the IVA is off your credit file, you’ll have the chance to start rebuilding your credit score. Over time, you may find it easier to access financial products and services, but it’s crucial to manage any new credit responsibly.
Being free of overwhelming debt can also open up new opportunities – perhaps you’ll feel ready to change careers, start a new business, or simply start saving for the future. The key is to stay in control of your finances and not let unmanageable debt build up again.
In this journey, remember that ‘Become Debt Free’ is here to help. If you have any questions or need any advice post-IVA, don’t hesitate to reach out to us on 0800 169 1536, or leave an enquiry on our website.
Comparing IVA to Other Debt Solutions
When struggling with debt, an IVA is just one of the solutions available. It’s essential to consider all options before deciding which path to take. Here’s a brief comparison of an IVA to other common debt solutions: debt management plans, bankruptcy, and debt relief orders.
Debt Management Plans (DMP)
A DMP involves an agreement with your creditors to pay all your debts. You make regular payments to a licensed debt management company that then distributes this to your creditors. Unlike an IVA, a DMP isn’t legally binding, and creditors can still contact you and add interest and charges to your debt.
Bankruptcy
Bankruptcy is a form of insolvency that’s a suitable solution if you cannot pay back your debts in a reasonable time. Assets you own, such as your house or car, will usually be sold to pay off your debts. While bankruptcy releases you from overwhelming debts, it comes with serious consequences, including a severe impact on your credit rating.
Debt Relief Order (DRO)
A DRO is another form of insolvency, but it’s only available to those with a low income, few assets, and debts of less than £30,000. While cheaper than bankruptcy, it still severely impacts your credit rating and ability to borrow.
When to Choose an IVA?
An IVA can be a suitable solution if you have a regular income and can afford to make regular payments towards your debts, but not enough to pay off your debts in full. It’s often preferable to bankruptcy due to its less severe impact on your credit score and the flexibility it offers in keeping valuable assets for people.
However, it’s vital to seek advice from an Insolvency Practitioner, such as the team at ‘Become Debt Free’, to understand the full implications of each debt solution. We can help guide you through the complex process, offering advice tailored to your specific situation. Reach us on 0800 169 1536, or leave an enquiry on our website for money help.
Frequently Asked Questions (FAQs)
Navigating through debt and insolvency can often feel overwhelming. We’ve collated a few commonly asked questions about IVAs, their impact, and what life looks like after one.
What happens to my credit rating during an IVA?
An IVA will have an impact on your credit rating. It will appear on your credit file for six years from the date it starts, even if you complete your IVA early. This can make it more difficult to get credit, such as loans and credit cards, during this time.
Can I still get a mortgage if I have an IVA?
While an IVA is on your credit file, it may be harder to get a mortgage. However, it’s not impossible. Some lenders specialise in offering mortgages to people with IVAs or poor credit histories. The rates may be higher, and you may need a larger deposit.
Will an IVA affect my job?
This will depend on your specific employment contract and the industry you work in. Some professions, particularly those in finance, law, or certain public services, may have stipulations about entering into an IVA. It’s important to check this before proceeding.
Can I keep my car if I enter into an IVA?
In most cases, yes, particularly if it’s necessary for work or family life. However, if your car is of high value, you may be asked to sell it and buy a less expensive model, using the excess cash towards your IVA.
What happens to my pension in an IVA?
Pensions are generally protected in an IVA. However, if you’re due to receive a lump sum during your IVA, this may be taken into account.
Still have questions? Our team at ‘Become Debt Free’ are on hand to offer advice and guidance. Don’t hesitate to call us on 0800 169 1536, or leave an enquiry on our website.
Conclusion
Entering into an Individual Voluntary Arrangement (IVA) is a significant decision, which can influence your life and financial health in numerous ways. It’s crucial to fully understand the impacts on your personal finances, credit, and future prospects before deciding. This includes being aware of the potential benefits, such as making debt more manageable and providing some protection to your assets, alongside the potential drawbacks, like the effect on your credit score and certain restrictions.
Moreover, it’s important to remember that an IVA is just one of many debt solutions available. Other options such as debt management plans, bankruptcy, or debt relief orders may be better suited to your specific circumstances.
Regardless of your situation, seeking professional advice is a key step to getting back on track. At ‘Become Debt Free’, we specialise in helping individuals navigate their way out of debt. Our insolvency practitioners are ready to provide you with tailored advice and help you assess whether an IVA or another debt solution is the right path for you.
Feel like you’re ready to take that step towards a debt-free life? Don’t hesitate to call us on 0800 169 1536 or leave an enquiry on our website. Take control of your financial future today.
References
The primary sources for this article are listed below.
Find an insolvency practitioner – GOV.UK (www.gov.uk)
Details of our standards for producing accurate, unbiased content can be found in our editorial policy here.
