If a person has what is considered to be a problematic amount of debt but still believes they can repay a decent amount, an Individual Voluntary Arrangement is a realistic debt solution.
What is an IVA?
Individual voluntary arrangements are a kind of debt management option to resolve financial issues rather than going down a more drastic route involving insolvency (either a Debt Relief Order or bankruptcy). IVA debt management is nevertheless a more formal arrangement than other alternatives such as debt management plans or debt consolidation, as the borrower must owe a sum of £15,000 or more.
In most cases, IVA help is obtained for a period of five years. Such an arrangement means debtors are allowed to repay as much of their unsecured debts that they can afford over this term and any remaining debt will be written off upon completion. A person must have secured prior agreement with their lender to do this and the best IVA deals to freeze interest rates and other charges are often negotiated with them – cutting down the overall amount they will repay.
Full and Final IVA
Instead of repaying IVA debt over a certain number of years, sometimes a single payment can be made as a settlement to a serious debt problem. A full and final IVA is extremely rare and should only be considered if the applicant has a sizeable lump sum to give to their creditors and they will struggle to make monthly contributions in the future.
Applying for an Individual Voluntary Arrangement
To apply for an Individual Voluntary Arrangement, a person must have a large amount of unsecured debt owed to two or more lenders. An IVA is agreed with an insolvency practitioner who will take a detailed look at their client’s financial situation and review the position of their personal income, expenditure, assets and debts. If approved, a person’s name and address will appear on the publically available Individual Voluntary Arrangement register until the arrangement is completed.
Disadvantages of Individual Voluntary Arrangements
Though IVA help seems a good deal for both creditors and the borrower, as with bankruptcy the latter party will have their credit rating affected for six years. Furthermore, if a debtor cannot maintain their payments, the IVA agreement will be at risk of failure and they could be declared bankrupt.
When considering an IVA or bankruptcy however, a person will be spared the serious risk of losing their home if they opt for an Individual Voluntary Arrangement. While bankruptcy usually means a home owner will be force to sell their house and/or other assets, an IVA will allow them to maintain control over their property.
Because a person will have amassed a great deal of debt if they are considering an IVA, free debt advice should be obtained from IVA advice specialists to assess whether this option is right for them.
An IVA calculator is a useful tool to work out how much debt could be written off and how much any monthly repayments will be. IVA calculators require details about a person’s total debt, number of creditors, monthly income and expenses and whether or not they own their own home so they can gain a greater idea of what such an arrangement would entail.