Posted by admin on May 20, 2010
An IVA (Individual Voluntary Arrangement) can be a big help for people struggling with unmanageable unsecured debts. It’s a formal agreement with your unsecured lenders in which you’ll repay an agreed percentage of your debt, and your lenders will write off the rest once you’ve done that.
As with any debt solution, there are a number of things you’ll need to consider before you go ahead. Here are a few facts about IVAs to help get you started.
It’ll write off the debt you can’t afford
The idea of an IVA is that it enables you to repay as much of your unsecured debt as you can afford, and writes off the rest.
Your IVA will be set out over a fixed number of years – usually five – in which time you’ll be expected to pay as much as you can towards your debts each month. What’s left of your take-home pay after your other essential costs have been covered will go towards your debts.
On successful completion of the IVA, your remaining debt will be written off and you’ll be legally debt-free (in terms of unsecured debt – your IVA won’t be able to write off any mortgage debt you have, for example).
It protects you against action from your lenders
Once your IVA is agreed, it’s a legally binding agreement. Your lenders will no longer be able to pursue you for the debts, unless you fail to keep up with your IVA payments.
However, this works both ways – you are required to make your payments each month, and if you don’t the consequences could be serious. You could end up being made bankrupt.
Your home won’t be at risk
An IVA is extremely unlikely to end up forcing the sale of your home. This can make it a good option for homeowners who are really struggling with their debts and don’t want to enter bankruptcy.
However, if you are a homeowner, you may still be required to release some of the equity in your home in the final year of your IVA.
It’s only available to people who need it
Because an IVA writes off the debt you can’t afford and should leave you debt free after five years, some people might see it as an ‘easy way out’ at first glance – but this isn’t the case.
You’ll only be eligible for an IVA if you can demonstrate that you really can’t afford to repay your debts in full. You must also be able to commit to regular monthly payments, and you’ll be expected to pay as much as you can afford.
It’ll affect your credit rating
Like any form of insolvency, an IVA will harm your credit rating. This will make borrowing money more difficult while it’s on your credit report.
So you should only enter an IVA if you are completely sure it’s the right option for your circumstances. A debt adviser can talk you through all your options and help you find a debt solution that’s right for you.