Finding yourself with more than £10,000 of unsecured debt, which you cannot pay, is a worrying and frightening experience. If you are like most people in this position, you may have been ignoring the problem for a considerable time, and hoping it would go away, until you suddenly find it has spiralled out of control. Now you have to face up to the situation, and if you live in England, Wales or Northern Ireland an IVA is one possible solution.
What Are IVA’s?
IVA’s, or Individual Voluntary Arrangements, are fixed-term repayment plans which can enable you to repay a reduced amount to your creditors, and protect your house, car and other assets at the same time. IVAs usually last for five years, and after this the balance of your debt could be written off. This could be a much better solution to your problems than going bankrupt.
Role Of The Insolvency Practitioner
Of course, to be able to enter into an IVA, you have to get your creditors, or at least most of them, to agree to the terms. This has to be done through an Insolvency Practitioner (IP), who is a lawyer or accountant licensed to oversee IVA’s. You can find an IP through looking on the government’s Insolvency Service website, or Citizens’ Advice can help you. The Insolvency Practitioner acts as an intermediary between you and your creditors, and will also provide you with support and professional advice throughout the process.
The first thing the IP will do is hold a consultation with you, in which your entire financial situation will be looked at in detail. It is important for you to be honest about all aspects of your finances, including all your outgoings, and your secured as well as unsecured debts, such as your mortgage. If the IP considers that an IVA will be appropriate in your case, he/she will help you put together a proposal for your creditors. This will be based on how much you can reasonably afford to pay, without having to sell your house or car.
If the creditors holding 75 per cent or more of your debt agree, the IVA can be set up, and it will be legally binding on all the creditors, including those who did not agree. Your side of the contract is to make the agreed regular payments to the IP, who will distribute them to the creditors. The IP will see that both sides adhere to the terms — if either side defaults, the agreement will be dissolved and you may be made bankrupt.
Advantages Of IVAs
One of the best things about IVA’s is that they move the control away from your creditors. When you are struggling with debt, you feel completely powerless, because they are calling all the shots. Once an IVA is in place, the creditors no longer have the power to take any legal action against you, and they can no longer charge any interest or late payment penalties.
You can see that Individual Voluntary Arrangements have many advantages over bankruptcy. With IVA’s you can be assured of privacy, and freedom from stigma and embarrassment, as unlike bankruptcy your arrangement is not published in the local press. Another advantage is that an IVA has no effect on your professional standing, whereas if you are in certain professions, such as accountancy or the police, bankruptcy will cause you to lose your job. Bankruptcy could also make it very difficult for you to continue running a business, whereas an IVA will not interfere with your business career.
Things To Consider
However, there are some factors you need to be aware of when considering IVA’s. Bear in mind that every year you have to submit all your financial details to the IP for review, and you may find the intrusion on your privacy hard to take. You also cannot apply for a credit card or buy anything on credit while the agreement is in force, and the agreement is noted on your credit file. Be aware too that if you have equity in your house, you will be expected to contribute some of this in the fifth year of the agreement.
There are a number of options for dealing with a debt problem, and you should consider them all before deciding on an IVA. All the possible options have pros and cons, but you may find that IVA’s offer the best solution in your situation. However, it is essential to obtain the best advice, from a debt counsellor or from an organization like Citizens’ Advice, to make absolutely sure it is suitable for your situation.