Is it time to consider an IVA?

With most of our bills increasing such as food, fuel, petrol, pretty much everything you can think of, yet salaries staying the same with workers being asked to accept pay rise freezes this year or be out of a job, many people are finding it hard to manage their debts. Sometimes it gets to the point where there simply is not enough money coming in and you have to do something radical to be able to clear your debts. This is where an IVA can be a solution. However, taking out an IVA is not an easy option to becoming debt free although it should always be considered before bankruptcy. So what is an IVA, how do you qualify and are there implications on your credit history?

What is an IVA?

An IVA stands for ‘Individual Voluntary Arrangement’ and it is a legally binding agreement between you and your creditors. The purpose of an IVA is to help those who are in financial difficulty to make some sort of formal proposal in order to settle their unsecured debt within a certain timeframe. From the date of commencement of the IVA, all interest and charges are frozen to 0% and creditors are no longer permitted to ask for further payments.The length of an IVA is typically 6 years and it will be calculated exactly what you can afford to pay your creditors, outside your normal reasonable living costs. It will, however, have to be an amount over £150 a month. To get an IVA set up you have to employ a licensed professional called an Insolvency Practioner (IP) where you disclose all your unsecured debts into an IVA. You cannot settle secured debts such as car HP or mortgage repayments as these debts have already been secured against either your house or your car and the bank or finance company will just take these secured assets off you if you default.

Do I Qualify?

If you are finding that you are missing payments on a regular basis, have defaulted on some loans and cannot keep up with most of your monthly repayments, you may qualify for an IVA. To qualify you have to be earning a regular salary, your debts need to be more than £15,000 and you must be able to pay back at least £150 amonth to your creditors, after you have paid out all other essential living expenses. If you feel you may qualify you should still think seriously about taking out an IVA.

What are my Credit History Implications?

Taking out an IVA is not an easy option to becoming debt free but it is a better option than becoming bankrupt. If you take out an IVA your credit history will still be negatively affected as you have still effectively defaulted as you are not paying back the amount you borrowed on the terms that you agreed to with your creditors from the outset. Therefore, it will be on your credit history that you have “defaulted” on the agreements with them. This will stay on your credit file for 6 years. Moreover, you cannot apply for any further credit whilst you are in an IVA.

How do I get one?

If you have decided that an IVA is the only way you can get rid of your debts then you should seek professional advice and get yourself an IP (see above). If s/he deem that an IVA is the best way forward for you, you will have to undertake a financial assessment regarding all your current debts and then a repayment figure will be calculated. This will be put to your creditors who will then vote as to whether they accept or deny the agreement. The creditors who own more than 75% of your debt have the ruling on the final decision. If accepted it is a legally binding agreement and you will be expected to keep up your repayments for the next 6 years until the terms have been completed. When the IVA is finished, you will then be free from these debts despite the fact you have not paid off the full amounts. The payments are made to your IP who redistributes the monies according to a pro rata system until the end of the agreement. Upon the successful completion of the IVA you will be considered debt free. Any outstanding balances are written off.

For more information about IVA’s visit the Direct Government website.

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