IVAs - What They Are and How They Help
If you are struggling with very large debts - usually £15,000 or higher - then you may be eligible for an IVA (Individual Voluntary Arrangement). IVAs prevent thousands of people from going bankrupt every year, and are widely considered a preferable alternative to bankruptcy.
What is an IVA?
An IVA is a legally-binding agreement allowing you to avoid bankruptcy by agreeing to pay off a percentage of your debts over a set period of time.
Before you enter into an IVA, your Insolvency Practitioner will work with you to draw up an IVA proposal. This sets out how much you can afford to pay to your creditors.
Creditors accounting for at least 75% of your total debt must approve the proposal for the IVA to go ahead. If this happens, all creditors will be bound by the terms of the IVA.
Once your IVA begins, you will make regular monthly payments to your Insolvency Practitioner, who will divide the money amongst your creditors on a pro rata basis (i.e. based on what proportion of your debts each creditor is owed). These payments will be based on how much you can afford, as assessed by your Insolvency Practitioner, after your essential costs have been taken care of. This will usually continue for five years.
If you’re a homeowner, you may be expected to release some of the equity in your home in the 54th month (half way through the final year) of your IVA. Anyone on an IVA may also be required to give up some of any additional income earned while the terms are in place (including pay rises, bonuses and commission).
On successful completion of the terms, your remaining unsecured debt will be considered written off.
How can an IVA help my situation?
The main reason most people enter into an IVA is because it is usually considered a preferable alternative to bankruptcy. The main difference between the two is that an IVA will not result in you losing assets (i.e. your home) like bankruptcy can.
An IVA is by no means an ‘easy’ way out of debt, but many people with unmanageable debt consider it their best option. You must be committed to repaying as much of your debts as possible, as you will be left with little or no spare income for the duration of the IVA - but you can at least guarantee that on successful completion, you will be free of debt.
However, it may well be that another debt solution is more appropriate for your situation. If you’re struggling to repay your debts, you should always contact an expert debt adviser to discuss your options.
