An Individual Voluntary Arrangement (IVA) is a legally binding agreement in the UK between you and your creditors to pay back your debts over an agreed period, typically five to six years. It’s a formal alternative to bankruptcy and can be a suitable option for individuals struggling with unmanageable debt, offering a structured and potentially more dignified way to regain financial control.
How it Works:
The IVA process begins with contacting an insolvency practitioner (IP). The IP will assess your financial situation, including your income, expenses, assets, and debts, to determine if an IVA is a viable solution. If so, they will help you draft a proposal to your creditors outlining how you plan to repay your debts.
This proposal will detail the amount you can afford to pay each month (based on your disposable income after essential living expenses), the duration of the arrangement, and how your debts will be repaid. The IP will then present this proposal to your creditors. For the IVA to be approved, a majority (75% by value) of your creditors must agree to the terms.
Once approved, you’ll make regular payments to your IP, who will then distribute the funds to your creditors according to the agreed-upon schedule. As long as you adhere to the terms of the IVA, your creditors are legally bound not to pursue you for the debts included in the agreement.
Key Features and Benefits:
- Structured Repayment: IVAs provide a clear and manageable repayment plan based on your affordability.
- Debt Freeze: Once approved, interest and charges on included debts are typically frozen.
- Legal Protection: Creditors included in the IVA are prohibited from taking further legal action against you.
- Potential Debt Write-Off: At the end of the IVA term, any remaining debt included in the agreement is written off.
- Stay in Your Home: While homeownership can complicate an IVA, it doesn’t necessarily require you to sell your home. A solution often involves releasing equity at the end of the term, if possible, or extending the IVA.
Considerations and Drawbacks:
- Impact on Credit Rating: An IVA will negatively affect your credit rating for at least six years.
- Fees: Insolvency practitioners charge fees for setting up and managing the IVA.
- Financial Disclosure: You’ll need to provide a detailed account of your finances.
- Possible Loss of Assets: While IVAs aim to protect assets, some assets might need to be used to contribute to the repayment.
- Risk of Failure: If you fail to keep up with the payments, the IVA could fail, and your creditors may pursue you for the full amount of the debt.
Is an IVA Right for You?
An IVA might be suitable if you have significant unsecured debt, a stable income, and are committed to making regular payments. It’s crucial to seek professional advice from a qualified insolvency practitioner to determine if an IVA is the most appropriate debt solution for your individual circumstances. They can help you assess your options and understand the implications before making a decision.
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