This article is intended to explain the basics of what an IVA is and to offer some guidance on when it may be appropriate to consider one. Most references to IVAs on the web are from companies with a vested interest in offering you one, so there is a danger that the advice may be a little one-sided. The information in this article is unbiased and intended to provide the information you need to make an objective judgement about whether an IVA is right for you or not.
What Is An IVA?
An IVA is an Individual Voluntary Arrangement and is a legal agreement between you and the people you owe money to. It is a way of consolidating your debts into one payment, and will usually result in some of your debt being written off at the end of the process.
The usual requirement for being able to set up an IVA are that you have at least £15,000 in unsecured debts (ie debts which are not secured against your home, such as your mortgage) which you are unable to pay. Your debts must be to three or more creditors and you must have a regular income.
To set up an IVA you will need to have the agreement of at least 75% of your creditors (by value of the debts). If 75% or more agree to the IVA, then the remaining creditors have to go along with it. The majority of IVAs will last for a period up to five years, though the period varies depending on the circumstances.
Advantages of IVAs
Your monthly repayments may well be less than they were before
A proportion of your debts may be written off
You should be debt free at the end of the process
As the IVA is a private agreement, there are no public notices about it as there would be for bankruptcy
You will not normally be required to sell your home (as you may be with bankruptcy)
You will have only one monthly payment to think about
Creditors will no longer be allowed to hassle you for money owed
Disadvantages of IVAs
You have to pay for the IVA – the costs are substantial, so the process will cost you more than if you are able to deal with your debts on your own. Even if there are no fees up front, your monthly payments will include fees.
You must have at least £15,000 worth of debt
Future applications for credit may be affected, even after the IVA has ended
Your monthly payments could be increased if your circumstances change
If you don’t keep up with the payments on your IVA you could still be made bankrupt
You need at least 75% of your creditors to agree in order to go ahead
IVAs are unlikely to be available to you if you have no regular income or significant assets
It will take five years before you are debt free (bankruptcy is one year)
IVA Advice - Conclusions
So one of the key things to remember is that IVAs are not free. There is a real and substantial cost to you in setting one up, and this must be considered when weighing up whether it is the right option for you. Your monthly outgoings may look less, but you will be paying this for five years, so you could actually be paying more overall in the long run.
With the right advice, you may be able to tackle your debts yourself without actually spending more money in the process, so this avenue is always worth pursuing first. There is a surprising amount you can do to deal with a debt crisis without paying anyone else for their services.
Adverts and websites about IVAs will almost all paint a rosy picture and dwell on the most optimistic example of the proportion of your debts that COULD be written off. You need to balance what actually WILL be written off against what the IVA is going to cost you overall in fees.
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