What is an IVA and how does it work?

What does IVA stand for? An IVA is an Individual Voluntary Arrangement and is simply one route that can be followed in order to get out of debt . This arrangement brought in a number of years ago as an alternative to bankruptcy. It shares some similarities to bankruptcy, but with some notable differences.

It should be said at the outset that before considering an IVA or bankruptcy you should seek professional advice. Also it should be pointed out that IVA s or bankruptcy should only be invoked as a last resort, after attempting other ways of clearing your debt.

i.e. calculate average  income and outgoings over a period of a month, work out where you can make savings and how you might be able to increase your income, start to balance your budget and prioritise a reasonable amount each month for loan and credit card payments, seek debt counselling and advice.

An IVA can be used in situations of outstanding loans or credit card debt. It may be helpful in a situation where you have only been able to pay interest on a loan or credit card, or where your credit card debt has sky-rocketed and you realise that with your current income, there is no way you would be able to pay it back. You will need to weigh up the chances of you being able to pay back your debts. If you can’t and it’s causing you a great deal of stress and health problems, then an IVA may help.

What is an IVA ? – the legal stuff: An IVA is a formal contract between a debtor and a creditor and forms an agreement between the two parties regarding the payment of outstanding debts over a reasonable period of time.
After the final payment, whatever debt is left over is then written off.

 

What are the advantages of an IVA ?

– details of debts are private and not public as in the case of bankruptcy. This is helpful especially if your job requires you to have a public profile
– doesn’t have the same stigma as bankruptcy.  The feelings of failure that come with bankruptcy can leave long lasting psychological difficulties for some people. An IVA avoids the associated stigma.
– you won’t lose your home although you may have to give up equity. No one wants to lose their home, but if you are declared bankrupt, if after all your other assets are disposed of, your debts have still not been paid, then your house could be sold off to pay any outstanding debts.
– could save you from losing your job, if bankruptcy could disqualify you, Certain professions have strict rules about who can serve in those professions, and in some cases bankruptcy could lead to dismissal from a profession.

What are the disadvantages of an IVA ?

– credit ratings agencies tend not to distinguish between IVA and bankruptcy. It will still be difficult for you to get credit for several years. There’s no easy way around this. It just takes time to get your credit rating back. The important thing is not to do anything to make it worse again.
– you need to be in a position of being able to pay off some of your debts. In order to do this, you might need to make changes to your spending. The best thing would be to draw up a budget(see our other posts  about this elsewhere on this website)
– there is an initial financial outlay that some people may not be able to afford in the first place.

Individual Voluntary Arrangements can be useful in the right circumstances, but it’s best to seek further professional advice before you make a decision over whether this is right for you. Bankruptcy may be an alternative option in some cases, but it is best to seek further professional advice.

If this article has been helpful to you, please leave a comment in the box below. Also check out some of the other links on this page to other helpful debt advice articles.

What is an IVA

What is an IVA