Things Need to Be Aware Before Choosing an IVA for Debt Resolution

You may be feeling overwhelmed by your debt and considering to apply for an Individual Voluntary Arrangement (IVA) to ease your financial burden. Before you take the plunge, it’s crucial to understand the ins and outs of this debt solution. 

Don’t worry. In this article, we’ll delve into the key aspects you need to be aware of before opting for an IVA. From its implications on your credit score to the long-term commitment it entails, we’ll explore everything you should know to make an informed decision. If you’re thinking about using an IVA to handle your debt, keep reading to make sure you know what you’re getting into.

So, without further waiting, let’s get started…

How Does an IVA Affect Your Life?

An IVA can have significant implications on various aspects of your life. Initially, it seems like a breath of fresh air since your creditor’s annoying calls get stopped, interests and charges regard to your debt get frozen, and you have one manageable payment each month. 

But let’s dig deeper.

• Firstly, it may impact your employment opportunities, especially in legal or financial roles, where restrictions or limitations could apply. 
• Additionally, your current assets might be sold as part of the agreement, and any future income or assets may need to be directed towards the IVA. 
• Furthermore, obtaining credit becomes challenging as your credit score takes a hit, and you must seek permission from your Insolvency Practitioner for credit above £500. 

As you can see, an IVA can alter your financial landscape, affecting your job prospects, assets, and ability to access credit. Therefore, you need to be aware and ready to face these challenges.

Now, you may be wondering how long these effects will last. Keep reading. The next section covers the answer to this question.

Does an IVA Affect You Forever?

No, an IVA does not affect you forever. Typically, an Individual Voluntary Arrangement (IVA) lasts for a fixed period, usually around five to six years. Once you complete the agreed-upon term and fulfil all the requirements, the remaining debt covered by the IVA is typically written off, and you’re considered debt-free. 

However, during the IVA period and for some time afterwards, your credit score may be negatively impacted, making it harder to obtain credit. Therefore, it’s essential to understand the terms and implications of the IVA before entering into it, as it can have lasting effects on your financial situation.

After learning these facts, now you may be wondering is it worth applying for an IVA. Let us explore about that next. 

Is an IVA Worth Doing?

Whether an IVA is worth pursuing depends on your individual financial circumstances. It could be a beneficial solution for some but not necessarily for others. 

The best way to determine its suitability is by seeking debt advice, which is readily available through UK debt charities at no cost. 

Debt advisors evaluate your specific situation and recommend the most suitable debt solutions tailored to your needs. These services are accessible via phone or online platforms. Their services can help you ensure you make an informed decision about whether an IVA is the right path for you.

What Are the Pros and Cons of an IVA?

Dealing with debt can be tough, and an Individual Voluntary Arrangement (IVA) might offer a way out. But it’s important to know what you’re getting into. Let’s break down the good and bad of IVAs, so you can decide if it’s right for you.

Pros of an IVA:

• The monthly repayment is manageable and based on personal finances, making it more affordable.
• Property can be retained as long as mortgage payments are maintained.
• No upfront fees are required before the IVA is approved, and fees to the Insolvency Practitioner (IP) are deducted from the monthly payment.
• The remaining unsecured debts are written off once the IVA term concludes.
• Typically used to manage unsecured debts totalling £6,000 or more.

Cons of an IVA:

• Approval of the IVA proposal is not guaranteed, and creditors may reject it.
• Negative impact on credit score and inclusion in the Individual Insolvency Register.
• Personal spending is restricted during the IVA term, with regular financial reviews to ensure payments are sustainable.
• Failure to meet IVA repayments as agreed could lead to bankruptcy.
• Home equity may need to be utilised to repay more debt or extend the IVA term.

While these are the primary pros and cons of an IVA, seeking debt advice is crucial before making any decisions regarding debt solutions.

In addition to these pros and cons, adhering to an IVA can have some small impacts on your relationships as well. Let me explain further in the next section.

Impact on Relationships:

Individual Voluntary Arrangements (IVAs) can deeply affect personal relationships, especially when it comes to shared financial responsibilities. 

• The Strain on Relationships: Financial struggles leading to IVAs often bring stress and strain, causing tension and even relationship breakdowns. If one partner enters into an IVA without mutual understanding, it can breed resentment and distrust. 
• Joint Debts and Responsibilities: Joint debts like loans or mortgages don’t vanish with an IVA, potentially burdening the other party and straining relationships further. 
• Credit Ratings and Future Financial Plans: IVAs also impact credit ratings, affecting future financial plans such as buying a home. This can strain relationships between spouses, partners, or family members if they feel unfairly burdened by the financial consequences of the IVA.

Open communication, seeking advice together, and providing support throughout the process is crucial for minimising strain and maintaining trust in relationships amidst financial challenges.

Legal Requirements for Entering into an IVA:

To enter into an IVA, you must meet certain criteria, including having unsecured debts that you are unable to repay in full, being insolvent, and having a regular income to make monthly payments towards the arrangement. 

Additionally, IVAs require approval from creditors representing at least 75% of the total debt value for the proposal to be accepted.

Role of the Insolvency Practitioner (IP):

The Insolvency Practitioner serves as a pivotal figure throughout the IVA process. Their role encompasses various legal responsibilities, including assessing your financial circumstances, formulating the IVA proposal tailored to your situation, and negotiating with creditors on your behalf. 

Once the IVA is approved, the IP becomes the supervisor of the arrangement, overseeing its implementation. They collect payments from you and distribute them among creditors according to the agreed terms. 

Additionally, the IP acts as a liaison between you and your creditors, addressing any queries or issues that may arise during the term of the IVA.

Consequences for Non-Compliance with IVA Terms:

Non-compliance with the terms of an IVA can carry significant legal ramifications. If you fail to adhere to the agreed-upon payment schedule or violate any other terms outlined in the arrangement, creditors may take legal action against you. 

This could potentially lead to bankruptcy proceedings, wherein your assets may be seized to satisfy outstanding debts. 

Furthermore, if the IVA ultimately fails due to non-compliance or other reasons, you may still be liable for the entirety of your debts, along with any accrued interest and fees. It’s crucial to understand the legal obligations imposed by an IVA and diligently fulfil them to avoid adverse consequences.

Can creditors take legal action against me during an IVA?

Once an IVA is in place, creditors are bound by its terms and are legally prevented from taking legal action against you to recover the debts included in the arrangement. This protection provides relief from creditor harassment and gives you the opportunity to repay your debts in a structured and manageable way. 

However, it’s crucial to fulfil your obligations under the IVA to maintain this protection and avoid potential legal consequences.

How long does an IVA typically last, and what happens at the end of the arrangement?

IVAs typically last for a fixed term, usually around five to six years, during which you make regular payments towards your debts. At the end of the arrangement, assuming you have complied with its terms, any remaining debts included in the IVA are typically written off, providing you with a fresh financial start. 

However, it’s essential to understand that the impact of an IVA on your credit rating may persist for some time after its completion.

There are Alternatives to IVA in the UK: 

When facing financial difficulties in the UK, there are indeed several alternatives to Individual Voluntary Arrangements (IVAs) that individuals can consider:

Debt Management Plans (DMPs):

DMPs involve negotiating with creditors to lower monthly payments or freeze interest rates, allowing individuals to repay their debts over a longer period.

Unlike IVAs, DMPs are informal agreements and do not legally bind creditors to the terms. However, they offer flexibility and can be suitable for those with lower levels of debt or irregular income.

Debt Consolidation Loans:

Consolidation loans involve taking out a new loan to pay off existing debts and combining multiple debts into a single monthly payment.

While this option may simplify repayments and potentially lower interest rates, it’s crucial to ensure the new loan offers better terms than the existing debts. Additionally, it may not be available to those with poor credit scores.

Bankruptcy:

Bankruptcy is a legal process where individuals declare themselves unable to repay their debts. It involves surrendering assets to a trustee, who distributes them to creditors and typically lasts for a year.

While bankruptcy offers a fresh start, it has significant consequences, including a detrimental impact on credit ratings and potential loss of assets. It’s usually considered a last resort for those with severe financial problems.

Conclusion: Weighing Your Options

Deciding on an Individual Voluntary Arrangement (IVA) is a big deal, as it can seriously affect your life. While it helps with debt and stops creditor pressure, it’s important to think about both the good and bad sides. 

• Sure, it means you can manage payments better and might clear your debts eventually, but it can also hurt your credit and even lead to bankruptcy if things go wrong. 
• Plus, it could strain relationships, especially if money is shared. 
• It’s smart to look at other options like Debt Management Plans (DMPs) or bankruptcy and talk to someone who knows about debt to make the right call. 

Understanding what you’re getting into is key before saying yes to an IVA so you don’t end up regretting it later on.