An Individual Voluntary Arrangement (IVA) is a debt solution that can help those struggling with unmanageable debt regain control of their financial situation. In this blog, we will explore what an IVA is, how it works, its advantages and disadvantages, and whether it might be the right option for you.
What is an IVA?
An IVA is a legally binding agreement between you and your creditors to repay a portion of your debt over a specified period, usually five to six years. An insolvency practitioner (IP) sets up the IVA and negotiates with your creditors on your behalf. Once the IVA is approved, interest and charges on your debts are frozen, and creditors can no longer take legal action against you.
How does an IVA work?
To begin the IVA process, you’ll need to find a licensed insolvency practitioner. They will assess your financial situation and help you create a proposal to present to your creditors. The proposal outlines your repayment plan, including how much you can afford to pay each month and the duration of the IVA.
Your creditors will then vote on whether to accept the proposal. If creditors holding at least 75% of your total debt value agree to the proposal, the IVA is approved, and all creditors are bound by its terms.
During the IVA, you’ll make regular payments to your insolvency practitioner, who will distribute the funds among your creditors. Once the IVA term is complete, any remaining debt is written off.
Advantages of an IVA
- Provides a structured repayment plan that is based on what you can afford.
- Freezes interest and charges on your debts.
Protects your assets, such as your home and car, from being seized by creditors. - Stops creditors from taking legal action against you.
- Can write off a significant portion of your debt at the end of the term.
Disadvantages of an IVA
- Can negatively impact your credit rating for six years.
- Requires you to stick to a strict budget for the duration of the IVA.
- May require you to release equity from your home to repay creditors.
- Some debts, such as student loans and secured loans, are not included in an IVA.
- Failure to maintain payments can result in the IVA failing and creditors taking further action.
An IVA may be suitable if
- You have unsecured debts of at least £5,000.
- You have a regular income and can afford to make monthly repayments.
- You’re struggling to manage your debts, and other debt solutions are not suitable.
However, it’s essential to consider all your options and seek professional advice from a debt advisor or insolvency practitioner before making a decision.
An IVA can be an effective debt solution for those with significant unmanageable debt, providing a structured repayment plan and protection from creditor action. However, it’s crucial to consider the potential impact on your credit rating and the commitment required to adhere to the IVA terms. If you’re considering an IVA, reach out to Money Advice Helpline for expert guidance to help you make an informed decision.
