If you are struggling with an unmanageable level of debt, an IVA (Individual Voluntary Arrangement) may be a good solution for you.
However, like any debt solution, an IVA has its drawbacks as well as its benefits – so before you commit to anything, you should be certain it’s the right way out of debt for you.
IVAs – an introduction
An IVA involves committing to making reduced monthly payments towards your debts over an agreed length of time. This is usually five years, but may vary. The payments you make would be based on what you can afford after your other essential expenses (mortgage/rent payments, secured debt payments, food, etc.) have been accounted for.
Providing enough of your creditors agree to the proposed terms of the IVA, it can begin. At this point, all interest and other charges on your debts will be frozen – preventing them from getting any bigger. What’s more, your lenders won’t be allowed to take any legal action against you, unless you fail to abide by your side of the agreement.
Once your IVA has drawn to a successful close – i.e. assuming you’ve stuck to your side of the deal all the way through – any outstanding unsecured debt will be written off.
Please bear in mind, though, that entering an IVA will have a big impact on your credit rating. It will affect your ability to obtain credit for six years from the time it starts. What’s more, if you’re a homeowner, you may be expected to unlock some of the equity in your property half way through the final year of the agreement.
Would an IVA be right for me?
This will depend on your individual circumstances. An IVA would only be appropriate for you if you’re dealing with a significant level of debt that you genuinely cannot keep up with, and that you cannot afford to repay within a reasonable timeframe.
Even if you are eligible for an IVA, though, it doesn’t mean it’s the best option for you. You should discuss your options with a professional debt adviser who could talk to you about how entering an IVA may affect you.
And as with any other debt solution, you should always take a look at the alternatives before making a decision. For example, you may find that a different debt solution (such as a debt management plan, or even bankruptcy) is a more appropriate way of dealing with your debt problems.
