How will starting a debt solution impact your credit score?
Find out which debt solution is right for youGet started
Answer a few simple questions
See if you are suitable
Understand your next steps
There are pros and cons to an IVA. To understand if this debt solution is right for you, make sure you know what they are.
If you’ve heard confusing reports about whether Individual Voluntary Arrangements (IVAs) are a good or bad thing, we’re here to set the record straight. By the end of this blog you’ll know what an IVA is, its pros and cons, and whether it could be the right debt solution for you.
What is an Individual Voluntary Arrangement?
If you’re looking for a way to get back in control of debts that have become unmanageable, an IVA could be the answer.
An IVA is a formal agreement that you come to with your creditors to pay your unsecured debts off at a lower rate over a certain period of time. As long as everything goes to plan with the arrangement, at the end of the IVA any remaining debts included in it are written off.
An IVA is a formal debt solution which allows you to make one lower payment towards you unsecured debts each month.
IVAs are not available in Scotland; however, a Trust Deed is a similar solution and is available north of the border.
The truth is, there are good and bad aspects to an IVA, just like there are with any debt solution. First, let’s look at the upsides to this solution and the reasons why someone might want to enter into an IVA to solve their debt problems.
The good points
More affordable payments. One of the main advantages to starting an IVA is the reduction in what your creditors will expect you to pay each month. Instead of having to stick to your contractual payments, your debt advisor will calculate new payments based on what you can actually afford to pay each month.
If you’ve been worrying about unmanageable debts for a while, this should come as a huge relief and mean an end to the anxiety of worrying whether you can afford your payments.
Debt written off. If your IVA is successful, at the end of it any remaining unsecured debt would be written off, giving you a financial fresh start. The money that would normally go into the IVA can then be put towards anything you choose, as you no longer have those unsecured debts to worry about.
Legal Protection. An IVA is legally binding for you and your creditors, which means that they can’t suddenly decide that they don’t want to accept the lower payments – they have to stick to the agreement. It also stops them from taking any legal action against you to try to recover the debts.
Your house won’t be at risk. If you start an IVA, you won’t need to sell your house as you might if you were to go through bankruptcy.
Simpler payments. Instead of having to manage multiple debt repayments to several different creditors each month, you make one payment that covers them all. This is much easier to keep track of and should make managing your finances simpler and less stressful.
Damage to your credit history. An IVA, like any debt solution, will have a negative effect on your credit history. The lower payments mean breaking your contractual agreements with your creditors, and the IVA would show on your credit file for six years after the date that it starts.
This will mean you’ll find it harder, or more expensive, to borrow in the future. However, bear in mind that your credit history will already have been damaged if you’re defaulted on your debts before you enter into a debt solution.
It won’t take care of secured debts. You should usually include all your unsecured debts in your IVA, but IVAs can’t help you with any secured debts that you’re concerned about. Having said that, you will find it easier to afford your secured debts on an IVA as you’ll be paying less towards your unsecured ones.
Releasing equity. Although you won’t have to sell your house if you enter into an IVA, you will have to try and release some equity. This would happen six months before the end of the IVA but it would never be more than 85% of the value of your house. If you’re not able to remortgage (which is quite common) then your IVA will be extended for up to another 12 months so you can pay more into it.
The Insolvency Register. When you start an IVA, your details appear on the Insolvency Register. This is a public record of all the people who are insolvent in the country and is mainly used by creditors and credit reference agencies.
Is it right for me?
So, it’s not as simple as saying an IVA is good or bad; it just depends on whether it’s right for your personal circumstances or whether there is another debt solution that would be better for you. For instance, if you want to pay off all of your debts and can afford to make a payment towards them all each month – but just not as much as you’re currently paying - a Debt Management Plan might be a better option for you than an IVA. On the other hand, if you can’t afford to put anything towards your debts at all, then bankruptcy or a DRO might be a better alternative.
Make sure you get professional help and advice when it comes to sorting out your problem debts. Our experts have lots of experience recommending the very best solution for your needs - just use one of the options on the left to get in touch.
by Christine WalshBack to blog home