An IVA is an Individual Voluntary Arrangement. This works as an agreement between you and your creditors as a way of settling your debt within a five year period.
The amount you repay on a fixed period is worked out by assessing your monthly income and disposable income, from this it can be agreed what you are to pay back. There are IVA pros and cons.
One good thing is that in agreeing to an IVA from that point no more interest shall be charged to it as it is frozen at the point you agree, also this agreement can reduce the amount you have to repay, up to 65% in some cases!
The IVA is a very good idea by the looks of it, as long as you keep your agreed payments and do not fail to meet the conditions legally agreed to.
Your creditors will not suddenly demand extra payment as by law they cannot ask more from you than what was specified in the IVA. This applies to the creditors as much as to yourself.
In summary I think the IVA is a very good idea and not something which is likely to worsen a situation. If you think about it you are formally setting down to repay debt. Also you are doing so with a level of protection you could not get elsewhere. But, the major bonus would be that without such a thing it could be likely for the person to have to declare bankruptcy which only serves to bring bad news in the future. An IVA can work.
The Individual Voluntary Agreement or IVA was a good solution. The increase in advertising for the “debt write-off” scheme was over advertised and the global credit crunch have both had an effect on this however and IVA’s are quickly losing their status in the finance world.
The promise of 75% of your debts being written off is entirely dependent on your circumstances. If you can afford to pay off 50% your creditors will not allow you to take 25% and walk away, and you would be expected to pay back what you can afford. Banks are increasingly asking for a higher percentage payback and more realistically you can expect creditors to not accept much less than 60% of the total debt owed.
Many of the new firms are adding large expenses to these arrangements, which means that you are generally paying off the company a large amount for the first payments before they have had their fees and the rest goes to your creditors. This will affect the offer made to your creditors although you would usually see this added to your account and you would not expect to pay any more than already discussed. If you miss the IVA payments, you can be declared bankrupt and those charges added to your bankruptcy.
So an IVA is not really the best of the debt solutions for everyone and is often “too good to be true”. It can only really be considered if your only other option is bankruptcy and even then those that really can help, charge you a lot for the service.
The best advice that can be given to anybody in trouble with debt is to consider ‘debt management’, ideally with a recognised body such as the Consumer Credit Counselling Service (CCCS) rather than small company which may advertise on TV and is usually only interested in profiteering. This comment however, will discuss the comparison between the two options above.
IVA or bankruptcy? An IVA is a great alternative to bankruptcy, not just for the indebted individual involved, but also or the majority of creditors, who in general receive more than they would from bankruptcy proceedings.
Think hard about the implications of bankruptcy. Besides the stigma that is avoided by not having a bankruptcy order on your credit file for the next six years, making it nigh on impossible to obtain a bank account, there is also an element of privacy to an IVA that is not otherwise afforded. An IVA is not advertised in the local paper, leaving no threat from an observant mother-in-law or line manager.
Although a debtor’s credit file will likely be about the same in terms of a rating, obtaining credit isn’t legally off limits as it is during a bankruptcy, and there are even mortgage lenders who will lend to applicants with satisfactorily conducted IVAs from day one.
The main advantage however, the one which allows consumers to avoid a lot of heartache, is the law with regards to the debtor’s property. Whereas in bankruptcy all assets are turned over to the trustee, an IVA allows you to settle debts without the threat of a forced house sale, meaning there is no need to move and release any equity in one’s property.
As mentioned with debt management, getting debt help by speaking to a professional is the most important first step, and avoiding companies that may make matters worse is paramount. Along with cutting up the credit cards!
Those IVA adverts on TV stating that people can write off 75% of debt are a best case scenario. It is also a highly improbable scenario but it can be better than bankruptcy.
If you choose IVA as a debt solution, your creditors will seek a minimum of 25p for every £1 of debt as an absolute minimum which is where this figure in the adverts originates. It will be necessary to accept that there is a strong possibility that you will have to pay a lot more than this, particularly if you have a high earning professional vocation.
The insolvency practitioner also comes with a hefty price tag and can add a further £7000 to the amount you need to raise. If you also own a property you will be expected remortgage at the end of year 4. This could actually mean that you end up paying your debts in full.
If you maintain your payments for 60 months you will be discharged from your remaining debts. There are however some IVA benefits. It is not an easy option, but does give people with crippling debt problems the chance to keep their job, home and self respect.