If you are struggling with unmanageable debt, you may be looking for solutions to help you get back on track financially. One option that you may have come across is an Individual Voluntary Arrangement (IVA), but you may not fully understand what this entails or how it could benefit you. In this guide, we will take a closer look at IVA’s, how they work, and whether they may be the right solution for your financial needs.
What is an IVA?
An Individual Voluntary Arrangement (IVA) is a legally binding agreement between you and your creditors to pay back your debts over a fixed period of time. Through an IVA, you agree to repay a portion of what you owe to your creditors usually over five to six years through affordable and manageable monthly payments.
An IVA is an alternative to bankruptcy and is only available in England, Wales, and Northern Ireland. While there are similar arrangements in Scotland, the terms are different, and they have a different name.
How does an IVA work?
If you decide to proceed with an IVA, you will work with an insolvency practitioner, who will help you put together a proposal to present to your creditors. This proposal will include details of your current financial situation, including your income, expenses, and debts.
Once your creditors have received your proposal, they will have the opportunity to vote on whether to accept it or not. If the majority of your creditors agree to the proposals, the IVA becomes a legally binding agreement.
Once your IVA has been accepted, you will make affordable payments towards your debts for a fixed period of time, typically around five to six years. At the end of this time, any remaining debts will be written off, leaving you debt-free.
What are the benefits of an IVA?
One of the primary benefits of an IVA is that it allows you to repay your debts over a manageable period of time without having to declare bankruptcy. You will make a single payment each month, which will be distributed among your creditors, so you won’t have to deal with multiple payment schedules or debt collectors.
Another benefit of an IVA is that it can help protect your assets. If you file for bankruptcy, you may be forced to sell your assets to repay your debts. However, with an IVA, you will be able to keep your assets and avoid this potential scenario.
An IVA can also provide you with peace of mind, knowing that you are taking control of your debts and working towards becoming debt-free.
Are there any downsides to an IVA?
While an IVA can be an effective debt management tool, it may not be suitable for everyone. One potential downside to an IVA is that it will negatively impact your credit score, and it will remain on your credit file for six years. This can make it difficult to obtain credit in the future.
Another potential downside of an IVA is that it may require you to release equity in your home if you own one. You may also be required to make additional payments if your income increases during the term of the IVA.
Conclusion
If you are struggling with unmanageable debt, an Individual Voluntary Arrangement (IVA) can be an effective solution to help you take control of your finances. Through an IVA, you can make affordable monthly payments to repay a portion of what you owe, while also protecting your assets and avoiding the negative consequences of bankruptcy.
While an IVA may not be suitable for everyone, it can be an effective tool to help you become debt-free and improve your financial future. Be sure to seek advice from a professional before making any decisions.
