What You Should Know Before Applying For An Individual voluntary arrangement
1. Introduction: considering an IVA
An Individual voluntary arrangement (IVA) is a formal debt solution that allows you to pay back what you can afford over a set period of time, usually 5 years. Once the agreed repayments have been made, the rest of your debt is written off.
IVAs are a type of insolvency, which means they will have a serious impact on your credit rating. This means it will be very difficult to get credit in the future.
Before you apply for an IVA, you should consider other debt solutions, such as a debt management plan (DMP) or a debt relief order (DRO). You should also get advice from a qualified debt advisor to see if an IVA is the right solution for you.
2. Pros and cons of an IVA
Pros of an IVA:
– You make regular monthly payments that are more affordable than the usual arrangement of debt repayment.
– Your creditors can’t take further action against you during the term of the IVA, such as county court judgements, or issuing demands for repayment.
– An IVA could be cheaper than getting into debt consolidation or taking out a loan.
– When the IVA is completed, any remaining debts are written off.
Cons of an IVA:
– An IVA will have a negative impact on your credit rating, which could make it difficult to get credit in the future.
– If you have a partner, they must also agree to the IVA.
– Your creditors can vote to reject the IVA, and if they do you will have to explore other debt solutions.
– You can’t take out any further credit without informing your creditors during the duration of your IVA.
– If you fail to meet the payments outlined in the IVA, it could be terminated and you will have to find an alternative debt solution.
3. What you should know before applying for an IVA
Before applying for an Individual Voluntary Arrangement (IVA), it is important to consider a few of the following:
– If approved, the IVA is a legally comparable contract between a debtor and their creditors.
– Applicants must be British nationals and over the age of 18 years old.
– Do not take out any further credit or increase existing debts whilst on an IVA, as it could lead to the IVA being cancelled or rejected.
– Individuals may be required to improve the disclosure of their assets or incomes before accepting the agreement.
– The proposal will be heard by creditors and considered in a creditors’ meeting.
– A supervisor will be appointed by the Insolvency Practitioner who will manage and monitor the arrangements.
– All homeowners with equity in their property are required to remortgage to release funds to set against the debts.
4. Applying for an IVA: what to expect
When applying for an Individual Voluntary Arrangement, individuals should expect the following:
- A financial assessment will be conducted by a qualified Insolvency Practitioner to determine the individual’s individual circumstances before submitting a formal proposal to creditors.
- The proposal will include an offer of a fair and affordable repayment plan over a period of approximately 5-6 years.
- If creditors accept the proposal, they will enter into a legally binding agreement with the debtor.
- Debts should be settled as soon as possible and all payments should be made on time.
- At the end of the agreed period, the remaining debt will be written off.
- All creditors must be informed of the arrangements.
- Creditors will no longer be allowed to contact debtors during the period of the IVA.
- Any assets held by debtors may need to be sold to pay off the debts.
- Debts can include but are not limited to, mortgages, loans, credit cards and overdrafts.
- It is recommended that individuals seek professional debt advice before applying for an IVA.
5. Final thoughts on IVAs
Individual Voluntary Arrangements (IVAs) can be a powerful debt solution for those in serious financial difficulty. It is important to remember, however, that an IVA cannot solve every debt problem. Sometimes other debt solutions might be more appropriate.
When considering an IVA, it is important to be aware of the pros and cons. An IVA can help reduce payments and write off the remaining debt at the end of the term. However, there are also risks involved including having to sell assets and a negative credit score for the duration of the IVA.
In order to make an informed decision, it is essential to seek professional debt advice before applying for an IVA. An accredited professional can provide all the necessary advice and guidance to ensure the best solution is chosen in accordance with the individual’s financial circumstances.