Individual Voluntary Arrangement is a debt solution program meant to help you repay your debt. It is like a life-line to those who are barely surviving in their life, so repaying a debt is like impossible to them. In short, IVA is an arrangement to help those repay their debts that are financially in need of it.
What’s an IVA?
IVA, also known as Individual Voluntary Arrangement is a formal alternative presented before individuals to avoid bankruptcy. It is an agreement between you and your creditors that will help you pay off your debts at a rate you can afford.
IVAs are legally bound by the court. This means you’ll get protection against your creditors and they won’t be able to take any further action against you to take back their money. But this works as long as you keep your end of the bargain and follow the contract thoroughly.
How IVAs Work
Once your creditors accept your proposal for an IVA it’ll freeze all your debts that are included in the agreement and it’ll allow you to pay them back over the period of five to six years (60 to 72 months). After the period of time, all the money you still owe will be written off.
You can apply for an IVA if you don’t have the full amount your creditors want but some amount to give to your creditors. You will need to show you that you have a regular long-term income to pay installments over the period of time. You can also apply for an IVA if you have a lump of the sum to pay into your debt.
IVAs are set up by qualified professionals known as Insolvency Practitioner. They work with you and put up a proposal to present in front of your creditors to get their approval.
It is up to your creditors whether they will agree to the IVA proposal or not. You cannot force them into agreeing to the proposal. But an IVA is legally bound which means once you and your creditors have signed it none of you can back out.
Upsides of an IVA
An IVA has both its upsides and downsides. Advantages you’ll get if apply for an IVA are:
• Affordable monthly payments over 60 to 72 months.
• You won’t have to sell your home if you don’t want to. But if you have a secured loan or mortgage payments on your property you’ll have to pay those installments accordingly.
• You won’t have to pay any setup fees before the agreement.
• You’ll be legally protected from your creditors.
• All interests and charges on your debt will be frozen.
• Any remaining debt after your final payment will be written off.
• You won’t have to face bankruptcy.
• After your final payment, your creditors won’t be able to pursue anymore.
• If you want you can clear all payment with a ‘full and final’ settlement. You can also pay extra with your monthly installments to repay the debts quicker.
• There are fees after you sign up for an IVA. But they’ll be included in your monthly installments. That way you won’t have to worry about them differently.
Downsides of an IVA
You’ll have to face some disadvantages if you apply for an IVA. Such as:
• Since it’s a legal contract you and your creditors both will have to follow through it.
If you fail to keep your end of the bargain, you’ll lose protection from your creditors. Your creditors can also make you go through bankruptcy.
• Only unsecured debts can be included in an IVA.
• Your creditors have the right to decline your proposal.
• It’ll affect your credit ratings negatively until the contract ends.
• Your spending will be restricted until IVA comes to an end.
• Your IVA will be recorded on a public register.
• All debts you didn’t include in your IVA will still remain.
Debts That IVA Covers
Most of the unsecured debts can be covered through IVA. But any secured debt cannot be included in an IVA. Debts that can be paid off using an IVA are:
Credit and store cards
An IVA is a legally binding agreement between you and your creditors. So, make sure you know all about the contract before you apply for it as it has both its advantages and disadvantages. So, be sure to contact an adviser before you take any steps.