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An IVA, Individual Voluntary Arrangement, is a legally binding contract between you and your creditors which enables you to make reduced monthly payments to your lenders in an attempt to pay off a percentage of what you owe whilst avoiding the option of bankruptcy.

Get Your Finances Back On Track With An IVA

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Generally, an IVA is set up over a fixed period, usually 5 years, after which the debt is usually classified as settled. Any interest or further charges become frozen and it is then forbidden for creditors to demand such additional payments. Because of the legal aspects of this agreement an IVA must be set up by a licensed Insolvency Practitioner, a professional accountant who will propose your IVA to the creditor.

The arrangement entails a monthly repayment plan based on your current financial circumstances over a period of 3-5 years, after which the remaining debt is wiped clean leaving you debt-free. Therefore depending on your financial situation, up to 75% of your debt can actually be written off.

What are the advantages of an IVA?

The principal advantages of an Individual Voluntary Arrangement are that you are given the chance to manage your debt in a much more flexible and affordable way. Unlike bankruptcy, you are not restricted to such limitations regarding personal credit, being able to act as director of a company and essentially applying for a mortgage. An IVA is overall a far more private matter and ensures that both your home and job are protected.

Also IVA’s actually provide a better financial return to creditors as the administration costs are by far lower than those of bankruptcy, plus they can reclaim any tax and VAT as a bad debt since an IVA functions the same as an insolvency procedure.

The disadvantages of an IVA

On the other hand the disadvantages of an IVA are, that they are generally run over a much longer period than in bankruptcy, you can only use an IVA if your debts exceed £15,000, and unless specifically stated as excluded in the proposal, your home and any other assets may be at risk should you fail to comply with the agreed terms of the arrangement. Therefore if you do not keep up with the agreed payments it is likely that your creditor will not hesitate to take further action which may result in that which you wished to avoid, bankruptcy.

You must remember that the agreed monthly repayment will be worked out on what you owe and of course what you can comfortably afford. However any extra capital you may have will be expected to add to your repayment contribution and not kept back for your own personal consumption. Therefore you must be prepared to make a series of serious yet realistic cutbacks throughout the period of the IVA. Try to be as upfront as possible regarding your finances from the off start in order to guarantee the most flexible arrangement with your creditor. Any emergency factors such as illness and redundancy must be notified to your Insolvency Practitioner so that a ‘payment holiday’ can be negotiated. This will give to time to get back on your feet before your IVA payments can be resumed.

You must also be made aware that an IVA will affect your credit rating but once it is completely paid off any record of your IVA will be wiped clean from your credit file. It will however take some 12 months or more to reassess and rebuild your credit rating.

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