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Thinking about an IVA
An IVA (Individual Voluntary Arrangement) is a form of insolvency that could be an alternative to entering into bankruptcy.
Let's look at exactly what an IVA is and how it could help you become debt-free.
What is an IVA?
An IVA is a legally binding agreement that's available to residents of England, Wales and Northern Ireland.
Once your IVA is agreed, it could allow you to:
- Make one agreed monthly payment that's matched to your financial situation
- Freeze any interest and charges on your unsecured debts
- Protect your home from repossession
- Avoid the potential 'social stigma' of bankruptcy
How does an IVA work?
If your IVA is agreed, rather than paying your unsecured lenders directly, you'll agree to make reduced monthly payments into the IVA over a fixed period of time: in most cases, 5 years.
Once your IVA begins, you'll be protected from any further legal action from your lenders and, on successful completion, any remaining unsecured debt you have included in your IVA will be written off.
How could I set up an IVA?
An IVA can only be set up by an Insolvency Practitioner (IP): a professional qualified to act in insolvency cases.
If an IVA is considered to be the best solution for your circumstances, the IP will help you to draw up an 'IVA proposal' - a document outlining the details of your IVA to your lenders, based on how much you can afford to pay every month (after your secured debts and essential expenses - food, mortgage/rent, utility bills, etc. - have been covered).
The proposal will then be sent to your unsecured lenders, who will then vote on whether to accept your IVA. If enough of your lenders agree - that is, those who 'own' 75% or more of the total debt value - the IVA can officially start, which means your lenders will be bound by the terms of the agreement as long as you keep up with your repayments.
What are the disadvantages of an IVA?
It is likely that, as part of your IVA agreement, you'll have to release equity in your home in the 54th month (if you're a homeowner).
Also, assuming your IVA lasts for 5 years, it will remain on your credit file for a year after its successful conclusion - which may affect your ability to get credit.
Could an IVA be right for me?
Even if you're struggling to repay your unsecured debts, an IVA may not always be the most suitable approach.
Speak to a professional debt adviser first to discuss your options and find out what the best debt solution is for your circumstances.
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