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Tackling your debts

Could an IVA help write off your debts?

Posted 29 January 2018

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An Individual Voluntary Arrangement (IVA) could help to write off most of your debts over a fixed term of, usually, five years.

If you’re in Scotland, a Trust Deed provides a very similar solution. But is an IVA the right debt solution for your circumstances? To help you decide, let’s have a look at what an IVA is, weigh up whether it’s suitable for your situation, and then take a look at what you need to do if you think it's suitable.

How an IVA works

Firstly, you can’t set up an IVA by yourself, you have to apply through an insolvency practitioner (IP), who’ll draw up your proposal and send it on to your creditors. They’ll then vote to agree, or disagree, with the arrangement.

One of the main benefits of an IVA is you’ll make a single, affordable monthly payment towards your debts over a fixed term. The repayment amount is calculated to make sure you have enough left over to cover essentials, such as your mortgage or rent, council tax, bills, travel, food, clothes, and so on.

Once you’re set up with an IVA, you’ll also be protected from your creditors. This simply means they won’t be able to take legal action or pursue you for repayments, which would take off a lot of stress so you can simply focus on your monthly IVA payment. And if you are a homeowner, you won’t have to sell your property.

However, be aware of potential disadvantages – if your IVA fails, for instance, you could be made bankrupt. Your name and address would be added to the Insolvency Register, which is a public record. Being on an IVA will also affect your credit rating.

In summary, an IVA is a proven way for you to pay back some of the money you owe and, when your IVA is completed, any remaining debt is written off. If this sounds like it could suit you, read on for more details.

Is an IVA suitable for you?

With the basics of an IVA covered, let’s take a look to see if it could be the solution for you. Remember, each debt solution is different – an IVA might provide you with a suitable debt solution, but if it isn’t then you may need to consider an alternative. Don’t worry if this is the case, as there are other options which could fit your circumstances.

For now, have a read over the points below – these are the advantages of an IVA:

- Affordable monthly repayments tailored to your circumstances

- Creditors can’t add further interest or charges to your debt, so long as you keep up with your repayments

- When your IVA ends, your remaining debts are written off - in some cases by as much as 80%

- Peace of mind – by meeting monthly repayments, you’ll remove a lot of stress from your life

As with any debt solution, there are a few downsides to consider, too. Let’s have a look at them:

- If you miss repayments, your IVA could fail. If it does, your creditors could try to make you bankrupt

- Your credit rating will be affected for six years from the start of your IVA

- Details of your IVA will be added to the Insolvency Register

- If you own a property, you may be asked to remortgage to release equity. If you can’t do this, your IVA may be extended by an extra year

If you’d like to know if an IVA is the right debt solution for you, you can check this IVA qualification details page for more information. 

by Christine Walsh

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.