How does an IVA work?

« « Debt consolidation loans - are they available during a credit crunch? | Protected Trust Deeds: A Resolution for Personal Insolvency » »

Subscribe To Our Feed

If you are struggling with a high level of unsecured debt, an IVA (Individual Voluntary Arrangement) could help you clear your debts. An IVA is a formal agreement between you and your unsecured creditors in which you will, in most cases, be required to spend 5 years making reduced monthly payments, based on an amount you can realistically afford (after your essential expenses, such as mortgage/rent, utility bills and food have been covered). Your creditors will agree to write off any outstanding debt once the IVA has reached a successful conclusion.

An IVA could be suitable for you if you can’t afford to repay your unsecured debts within a reasonable amount of time, but can commit to making regular reduced monthly payments.

How does an IVA work?

Before you enter an IVA, you will speak to a debt expert to discuss your circumstances. If they believe that an IVA is the best course of action for you to take, you will work with an IP (Insolvency Practitioner) to come up with an IVA proposal, which will detail how you plan to repay (a portion of) your debt - and which will be sent to your creditors.

In order for an IVA to go ahead, voting creditors accounting for at least 75% of your total debt will have to approve of the terms in your proposal. If the IVA is approved, you will begin making your monthly payments to your IP, who will subsequently distribute money amongst your creditors according to how much you owe each of them (this is known as a pro rata payment). Your payments will normally go on for 5 years, and once you’ve fulfilled your side of the arrangement, any remaining unsecured debt will be written off.

Please note, though, that an IVA can have some drawbacks. For example, if you are a homeowner, you may be required to release some of the equity in your home half way through the final year of your IVA. In addition, entering an IVA will damage your credit rating for 6 years from the time it starts, affecting the cost and/or availability of further credit for that time.

Just reading about an IVA won’t provide you with enough information to know if one is right for you - you should always speak to a professional debt adviser before making a decision. You may find than an alternative solution, such as a debt management plan or even bankruptcy, is more appropriate for someone in your situation.

Get Social, Bookmark Us!!: These icons link to social bookmarking sites where readers can share and discover new web pages.