Is an IVA right for you?
However, an IVA should never be entered into lightly, as it will affect your ability to borrow for many years to come.
What is an IVA?
Coping with debts can be extremely stressful, but if yours have spiralled out of control, an Individual Voluntary Arrangement (IVA) could provide one way to get back on track. An IVA is a legally-binding insolvency agreement set up between an individual and his or her unsecured creditors. They are usually administered by an insolvency practitioner or debt advisor.
Once you’ve taken out an IVA, your creditors can no longer pursue you for your debts, which means they should stop contacting you once the IVA is approved.
To be eligible for an IVA, your debts must amount to £15,000 or more and be owed to at least three different creditors. A minimum of 75% of your creditors (in amount of total debt, not number) must agree to the IVA.
When you take out an IVA, it will usually last for five or six years, during which time you will pay an agreed amount to your creditors. Once the five or six years finishes any remaining debts you haven’t yet cleared will be wiped out.
Is an IVA right for you?
If you have tried everything you can to clear your debts, or to negotiate alternative repayment plans with your creditors but with no success, then an IVA could be worth considering.
You won’t be able to qualify for an IVA unless you have a regular income. One of the conditions is that you pay a fixed amount towards paying off what you owe every month, although sometimes a lump sum payment is agreed at the outset.
If you own your own home, you should be allowed to keep it, provided you can keep up your mortgage payments, and if you have equity in it, you will have to try to re-mortgage or make extra payments to your IVA.
Remember that you won’t be able to borrow again during the term of the IVA.The IVA will then remain on your credit file for 12 months after it has finished, making it extremely difficult to borrow through credit cards, loans or a mortgage.
If you are struggling with debts and aren’t certain if an IVA is right for you, seek advice from one of the free debt advice charities such as StepChange (formerly the Consumer Credit Counselling Service) or Money Advice Trust. Alternatively, contact your local Citizen’s Advice Bureau. It may be able to negotiate with creditors for you, so that you can come up with a manageable repayment plan that keeps everyone happy.