Is an IVA the Right Decision for Me?

Is an IVA the right decision for me? To answer this question, you need to learn more about this debt solution. IVA (Individual Voluntary Arrangement) is a legal contract concluded between the debtor and creditors. This contract imposes certain obligations on both parties, and is usually advantageous to both. Individual Voluntary Arrangements are a government-backed solution that has been in use in the UK since 1986.

One's Individual Voluntary Arrangement is typically managed by an insolvency practitioner – a specialist who usually works for a debt relief company. IVA doesn't cost anything directly, as everything is factored in. The insolvency practitioner determines the amount of money that the debtor can afford to pay over 5 years from the start of their program; what they can't pay is simply written off. The agreement stops creditors from taking any further action against the debtor. After 5 years, the program is completed and the creditors cannot pursue any outstanding debt.

How much debt can be written off? Usually, about 50% of one's debt can be written off. In very rare cases, it can be as much as 70%. One essential point about this solution is its flexibility – it is always based on the individual circumstances of the debtor. Usually, this program prevents bankruptcy. With an IVA, you keep your home and release a certain amount of equity instead. Other than being able to keep your home, the advantage of IVA over bankruptcy is privacy – nobody will know about it, other than the judge, your insolvency practitioner, and your creditors.

Creditors typically agree to this solution, as it is more advantageous for them than bankruptcy. Why? This is because your creditors will receive more money from you, as you will have to keep paying them back as much as you can for 5 years. If you start to earn more, your repayments are likely to increase, because you pay as much as you possibly can under this program. Debtors need to remember the following: if you enter this program, you need to complete it. If you stop paying, you will be risking bankruptcy.

Similarly to bankruptcy, the advantage is that your creditors will stop bothering you; the interest payments and charges will be frozen. Once you complete the program, you will have a fresh start. Just like bankruptcy, the disadvantage is that the record of an IVA will remain for six years, and make it more expensive and harder to obtain credit in the future.

Not everyone will qualify for an IVA. For example, you may not qualify if you owe very little, or if you don't have a job, pension, or property. But it's definitely an option to consider, especially if it's one of the few remaining options instead of bankruptcy.