IVA Guide: Can an IVA Help To Solve My Debt Issue?

Are you overwhelmed by mounting debts and unsure how to regain financial stability? If so, you’re not alone. Many residents in the UK face similar challenges, wrestling with the burden of debt and searching for viable solutions. 

An IVA is a legally binding agreement between you and your creditors to pay off your debts over a set period, usually five to six years.

In this article, we delve into the topic of Individual Voluntary Arrangements (IVA) and explore whether they could be the key to resolving your debt issues. If you’re wondering what an IVA is or if it’s right for you, keep reading to find out how it could help ease your financial burden.

So without further waiting, let’s get started…

How Does an IVA Work?

An Individual Voluntary Arrangement, commonly known as an IVA, is a legal debt solution designed to help individuals manage substantial debt more manageably. The process begins when an insolvency practitioner (IP) assesses your financial situation to determine if an IVA is viable. If it is, they will create a proposal outlining your payment plan, which is then sent to your creditors. 

For the IVA to proceed, at least 75% of your creditors by debt value must approve it. This creditor approval is crucial as it legally binds all parties to the terms. What if they don’t agree? Your options may be limited, but alternatives exist, which will be discussed later in this article. 

The successful setup of an IVA can be a game-changer. By formally entering into this programme, your debt’s interests and charges will be frozen, allowing you to pay them off over a fixed period, typically 5 to 6 years. In addition to that, any debt you owe after completing the IVA will be written off.

But the journey doesn’t end there—let’s see what else you need to know.

IVA Pros & Cons

Opting for an IVA is a significant decision that comes with both advantages and disadvantages. Some of them are as follows.

Pros:

• No upfront fees: Setting up an IVA doesn’t require any upfront fees, making it more accessible for individuals seeking debt relief.
• Legally binding: Once an IVA is in effect, creditors are legally bound and cannot pursue further action to recover debts.
• Debt write-off: Upon completion of the fixed-duration IVA, any remaining debts are written off.
• Frozen interest and charges: By adhering to the repayment schedule, interest and additional charges on debts are frozen.
• Tailored proposal: A licensed Insolvency Practitioner (IP) can assist in drafting a proposal based on your personal and household finances.
• Convenient payments: Instead of managing multiple payments to various creditors, you only need to make a single payment under the IVA.

Cons:

• Spending restrictions: You may need to adhere to spending restrictions outlined in the IVA agreement.
• Exclusions: Not all debts can be included in an IVA, such as student loans, child support, magistrate court fees, and social fund loans.
• Creditor rejection: Creditors have the option to reject the proposed IVA.
• Failure consequences: If you fail to stick to the repayment schedule, the IVA may fail, and creditors could petition for your bankruptcy.
• Public record: IVAs are recorded in the Public Insolvency Register.
• Credit rating impact: An IVA will be noted on your credit file, affecting your credit rating for a period of 6 years.

Understanding the advantages and disadvantages of IVAs is crucial for making an informed decision about managing your debts. We strongly advise you to take debt advice from a professional debt advisor if you cannot deal with debt issues alone.

Is IVA the Right Debt Solution for You?

Determining whether an Individual Voluntary Arrangement (IVA) is the right debt solution for you in the UK depends on various factors, including your financial situation, the types of debts you have, and your long-term financial goals. IVA can offer significant benefits for individuals struggling with unmanageable debts, but they also come with certain considerations to keep in mind.

Here are some facts you need to consider in order to determining whether an Individual Voluntary Arrangement (IVA) is the right debt solution for you in the UK:

1. Level of Debt: IVAs are typically suitable for individuals facing significant levels of debt, often above £6,000.
2. Type of Debts: IVAs primarily cover unsecured debts, such as loans and credit cards, while certain types of debts, like secured loans or student loans, may not be included.
3. Ability to Make Payments: IVAs require you to make affordable monthly payments based on your income and expenses.
4. Financial Stability: It’s essential to consider whether you can maintain IVA payments throughout its duration, typically lasting five to six years, without significant changes in your financial situation.
5. Long-Term Goals: IVAs have implications for your credit rating and financial future, so it’s important to consider how they align with your long-term financial objectives.
6. Seeking Professional Advice: Consulting with a professional debt advisor or Insolvency Practitioner (IP) can provide you with a comprehensive understanding of the implications of an IVA and explore alternative debt solutions tailored to your needs.

Ultimately, whether an IVA is the right debt solution for you depends on a thorough assessment of your financial situation, goals, and preferences. Therefore, it’s crucial to weigh the pros and cons carefully and seek personalised advice to make an informed decision tailored to your needs.

What’s the first step you should take to explore this further? Keep reading to find out how getting the right support can make a huge difference!

IVA Costs & Risks

Before committing to any long-term debt solution, it’s crucial to carefully consider the costs and risks involved. 

Here’s a breakdown of the costs and risks associated with Individual Voluntary Arrangements (IVAs) based on the provided text:

IVA Costs & Risks:

1. Costs: While there are no upfront charges for setting up an IVA, licensed insolvency practitioners will deduct fees from the payments you make for both the establishment and ongoing management of the IVA. These costs are contingent upon creditor approval and are deducted from your monthly payments.
2. Home: Homeowners may be required to re-mortgage their property towards the end of the IVA term if there’s equity in the property. Failure to re-mortgage could result in an additional year of payments into the IVA.
3. Belongings, Pension & Savings: Individuals in an IVA may need to liquidate valuables, assets (such as a car), or utilize savings to repay creditors. Windfalls, such as inheritances, may require a portion to be paid into the IVA, with a £500 allowance. Additionally, pensions are considered income, and creditors may have entitlements to them.
4. Ease of Getting Credit: Establishing an IVA will inevitably impact your credit rating, potentially making it more challenging to obtain credit in the future.

It always comes in handy if you have a clear understanding about what you getting into. That’s why we advise consulting with a professional debt expert before initiating plans for an Individual Voluntary Arrangement (IVA). 

There Are Alternatives to an IVA

When considering debt management options, it’s important to explore alternatives to an Individual Voluntary Arrangement (IVA) to find the best fit for your financial situation within the UK. 

Here are some alternatives to consider:

1. Debt Management Plan (DMP): A DMP is an informal agreement between you and your creditors to repay debts at a reduced rate over an extended period. It doesn’t involve a formal insolvency process and can be more flexible than an IVA.
2. Debt Consolidation Loan: Consolidating multiple debts into a single loan can simplify payments and potentially lower interest rates. However, it’s essential to ensure that the new loan offers better terms than your existing debts.
3. Bankruptcy: If your debts are unmanageable and you have little to no assets, bankruptcy could provide a fresh start by clearing most of your debts. However, it has long-term consequences, including restrictions on credit and potential asset liquidation.
4. Debt Relief Order (DRO): A DRO is a formal insolvency procedure suitable for individuals with low income, minimal assets, and debts below a certain threshold(under £20,000). It provides debt relief for a year, after which qualifying debts are written off.
5. Informal Negotiation: Contacting your creditors directly to negotiate reduced payments, interest freezes, or settlement offers can sometimes be an effective way to manage debts without formal insolvency proceedings.
6. Budgeting and Financial Counseling: Working with a financial counsellor or advisor can help you create a budget, prioritize payments, and develop strategies to manage your debts more effectively.
7. Selling Assets: Selling non-essential assets, such as a second car or valuable items, can generate funds to repay debts and alleviate financial strain.

Each alternative has its advantages and considerations. So it’s essential to weigh them carefully and seek professional advice to determine the most suitable option for your circumstances.

Seek Free Financial Advice 

Sometimes, you may find hardship in dealing with debt issues alone. In those situations, there are a number of debt charity organisations that you could use to get professional debt and financial advice free of charge. Their advisors will inquire deeply about your debt issue and will help you find a reliable solution to overcome it.

Below is a list of charity debt organisations where you could get free debt help:

1. StepChange
2. National Debtline
3. Citizens Advice
4. Debt Advice Foundation

Final Thoughts:

When it comes to dealing with overwhelming debt, it’s important to consider all your options. An Individual Voluntary Arrangement (IVA) can be one way to tackle your debts. It’s a formal agreement between you and your creditors to pay back what you owe over a few years.

IVAs have some good points. Your interest and charges get frozen, and any remaining debt after you finish the IVA gets written off. Plus, you only have to make one payment a month, which can be easier to manage.

But there are downsides too. You might have to stick to spending limits, and not all debts can be included. If you don’t keep up with payments, your IVA could fail, and you might end up bankrupt.

Before going for an IVA, it’s smart to look at other options like Debt Management Plans or bankruptcy. These might suit you better depending on your situation.

Getting advice from places like StepChange or Citizens Advice can really help. They can give you the lowdown on all your options and help you figure out what’s best for you.

So, while an IVA could be a good solution for some people, it’s worth taking your time to weigh up the pros and cons and get some advice before jumping in.