I cannot afford to repay my debts – could an IVA help?
If you have an unmanageable level of unsecured debt you can’t afford to repay within a reasonable amount of time, but you can commit to making regular reduced monthly payments, then an IVA (Individual Voluntary Arrangement) could be right for you.
What is an IVA, and how does it work?
An IVA is a legally binding agreement between you and your unsecured creditors in which you will be expected to make regular reduced monthly payments to your IP (Insolvency Practitioner) for, in most cases, 5 years.
Before you enter into an IVA, you will have to speak to a debt adviser to discuss your situation. If they are sure that an IVA is the most suitable way for you to repay your debts, you’ll talk to an IP, who will work along side you to draw up an IVA Proposal – which will be sent to your creditors. This will include details such as, how you aim to repay your debts and how much money each creditor will receive if the agreement goes ahead.
So how is an IVA approved?
In order for an IVA to begin, voting creditors who collectively ‘own’ 75% or more of your overall debt have to agree to the terms laid down in your IVA Proposal.
What happens when it is approved?
If your unsecured creditors approve of the IVA, then you will start making regular reduced monthly payments to your Insolvency Practitioner – who will subsequently share money amongst your creditors according to how much you owe each of them (this is called a pro rata payment).
How long will my payments last for?
In most cases, you will make payments to your IP for 5 years. However, this may vary depending on the terms of the agreement and whether you miss any payments during it.
Assuming your IVA comes to successful conclusion, any remaining unsecured debt will be written off.
Are there any drawbacks?
If you are a homeowner, you may be required to release some of the equity in your property during the final year of the IVA – this will be used to pay off more of your debt. Also, entering an IVA will show up on your credit report – which will affect the availability and/or cost of credit for 6 years from the time it starts.
A note…
It is important to note that before entering into any debt solution, you should discuss your options with a professional debt adviser. They will be able to discuss your situation with you and help you decide on the best course of action. You may find that an alternative debt solution, such as a debt management plan, is more appropriate for someone in your situation.
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