An Individual Voluntary Arrangement (IVA) is an agreement that can be an alternative to personal bankruptcy. A formal arrangement is made by a licensed insolvency practitioner (IP) between you and your creditors for you to repay a portion of your debt without as heavy implications as bankruptcy. Before applying, though, you should be aware of the IVA advantages and disadvantages.
An IVA can be an appealing option for those looking to pay off their debts and avoid bankruptcy.
Affordable monthly payments
Your IP will analyse your outgoings and income, and tailor how much you’ll pay each month to your individual circumstances. This arrangement makes it easier to pay back your debts at an affordable rate.
Some asset protection
It’s almost expected that someone going through bankruptcy will have to sell their personal assets such as a car or home. Your personal assets will be considered when applying for an IVA, which protects them more than in a bankruptcy, so you shouldn’t have to sell them to pay off your debts.
Unaffordable debt is written off after the IVA
An IVA usually lasts five years, and afterwards, any remaining debt is written off as unaffordable. Doing so could reduce the debt you owe by a substantial amount. It takes away the worry of not knowing how you’ll repay your debts because they’re reduced in size to fit your affordability, while also allowing creditors to get some return.
No upfront costs
Rather than charging an upfront amount for our IVAs, our fees are taken from the monthly instalments you pay. This amount is tailored to you and based on what you can afford.
Creditor pressure and interest frozen
Once the IVA comes into force, all interest on debts freeze, along with all creditor pressure. Even if a particular creditor didn’t agree to the proposal if an IVA goes through, it is binding to all parties. The IP will deal with all your creditors after the arrangement comes into force, saving you the stress.
So, those are some of the main IVA advantages. Before you apply for an IVA, you should be aware of the implications of the arrangement and what effect it could have on you and your finances going forward.
Requires creditor approval
For the IVA to go through, it requires approval from creditors who hold at least 75% of the value of the debt. If the creditors don’t feel they’ll get a better return than with bankruptcy or another debt relief option, they may reject the IVA proposal. You will then have to explore other options.
The IVA is made public
As with bankruptcy, an IVA is made public and listed on the Individual Insolvency Service register. Your details will stay on the register for the duration of your IVA and only get removed three months after it concludes. This public nature can also have consequences if you work in certain sectors. So, if in doubt, check with your employer or trade union.
Impact on your credit score
An IVA will negatively impact your credit score, and it can also make it harder to get any more credit. If you want to borrow more than £500, you must obtain permission from your IP. Once the IVA concludes, the details will stay on your credit file for six years after the commencement of the arrangement.
It is a legally binding agreement
An IVA is a formal arrangement, and although they offer a degree of flexibility, they are legally binding agreements. As such, the IP and creditors will expect you to keep up with the repayments. Failing to do so could cause the IVA to fail and will most likely lead to bankruptcy.
A more positive aspect of the IVA being legally binding is that it allows greater protection from creditors and bailiffs.
Not suitable for all debts
While IVAs can be extremely helpful with unsecured debts, they aren’t a universal solution. IVAs usually work best for debts more than £10,000; anything less might not be suitable. Additionally, certain debts cannot be included, such as secured debts, child maintenance, student loans and fines.
Individual Voluntary Arrangements (IVAs) have their benefits and drawbacks, which should be considered equally before applying. It can be an attractive alternative to going bankrupt with less of a long-lasting negative impact on you and your finances. There are no upfront costs with us, creditor pressure and interest will halt for the duration, and once the arrangement concludes, all unpaid debt is written off. However, you should be aware an IVA is a legally binding arrangement which requires creditor approval, details of your agreement will be made public. It will also negatively impact your credit rating.
How we can help
We can help you decide whether an IVA is the best option to help you clear your debts. We’ll review your individual circumstances and help you decide whether you’d benefit from an IVA or other debt-relief options. Contact us for free, impartial advice with no obligation.
Book a free telephone consultation with one of our initial advisers