Personal debt levels are rising and rising. The most recent research shows that UK household debt has never been more serious – with the typical Brit now owing £8,000. If you’re among this group, you may wonder what your options are and whether there’s an alternative to bankruptcy.
In 2018, record numbers of people sought a debt solution through IVA help – with 60,000 using an IVA.
In this guide we look at IVA pros and cons, and provide advice as to who this debt solution may (and may not) be suitable for.
An Overview of IVA Pros and Cons
An Individual Voluntary Arrangement (IVA) is a private agreement between you and those you owe money to. This agreement sets out a repayment plan to pay off your creditors with a monthly amount that you can afford.
IVA help is not available for those living in Scotland (the alternative in this region is a Protected Trust Deed).
There are two types of IVA help – one that repays your creditors in a single lump sum, and – the more common type – an IVA that lasts for either five or six years.
To apply for IVA help, you must use an Insolvency Practitioner, who will communicate with your creditors to arrive at an agreement of repayment. A minimum of 75% of your creditors must agree to the terms for them all to be bound by it.
IVA help is legally binding, so you must adhere to the terms of the IVA in order to benefit from the protection and benefits that IVA help can provide.
IVA Pros and Cons – Who could an IVA help?
Understanding IVA Pros and Cons begins with who they are and aren’t suitable for.
An IVA is suitable for those who have personal unsecured debt (e.g. such as credit cards and unsecured personal loans). The total amount of debt must be at least £15,000, which is owed to 3 or more creditors. You must also be able to make repayments each month, although how much will depend on several factors – such as how much you can afford and your total amount of debt.
IVA help is therefore not suitable for:
- Those who can’t afford any monthly repayment at all
- Total debts of under £15,000
- Business debts
- Secured debts (such as equity release loans or logbook loans)
IVA Pros and Cons
Before we dive into IVA Pros and Cons, you should be aware that every debt solution has pros and cons – such as bankruptcy potentially affecting you for the rest of your life, and debt consolidation requiring a reasonable credit score. An IVA is no different.
Let’s now examine IVA Pros and Cons.
IVA Pros and Cons – The Pros
- The fixed period of an IVA provides you with ‘light at the end of the tunnel’.
- You’ll receive IVA help from an Insolvency Practitioner who’ll work with you to provide advice on your finances.
- You may be able to come to an agreement with your creditors that reduces the total amount of debt owed.
- IVA help can assist you with better money management, as you will have a single repayment to make on all your debts.
- IVA help can mean that you keep your home (as opposed to bankruptcy, which might require your property to be sold). You should be prepared to release equity from your home if this is found to be suitable by your Insolvency Practitioner.
- Your creditors will freeze all interest and additional charges.
- IVA help is flexible, allowing for changes that may happen through its fixed period (such as a fall in income, which could mean that your IVA repayments are reduced).
- Your creditors will halt all legal proceedings and won’t communicate with you expect to send you statements.
- IVA help with provide protection for certain assets – such as your vehicle if it’s needed for commuting.
- IVA help will ensure that you have enough money left over from your repayments to pay for your living expenses.
- After the IVA is complete, you can work on rebuilding your credit score.
- IVA help is private. Unlike bankruptcy and other debt solutions, you won’t appear in the local paper (which may be the case with bankruptcy). However you will be added to the online insolvency register.
- You may avoid your job being affected if your employer prohibits bankruptcy but allows IVAs.
Worried about debts that won't go away?
IVA Pros and Cons – The Cons
For many, IVA help is the solution they need to gradually work their way out of a cycle of debt. However there are some consumers that IVAs aren’t suitable for, and the cons of an IVA must be balanced with the pros given your individual circumstances.
- You may be required to release equity from your home if it has significant value.
- IVA help may require you to sell assets if they have a sizeable value.
- You will need to be able to afford a set repayment each month.
- IVA help requires that you are responsible with your money moving forward. You will also have to seek permission if you wish to apply for credit and you’ll only be allowed to borrow up to £500.
- IVA help will affect your credit rating during the IVA period, and for sometime after until you’ve taken steps to repair your credit record.
- An IVA has a longer period than bankruptcy (typically five or six years, compared to 12 months with bankruptcy).
- You may need to close your bank account if your bank currently automatically removes money to pay your unpaid debts.
- IVA help may affect your job, as some employers prohibit their staff from becoming bankrupt or applying for an IVA. It’s therefore vital that you check the terms of your employment contract before proceeding with IVA help.
- IVA help must involve all your creditors – you are not allowed to come to separate agreements with different creditors (as you can with a Debt Management Plan).
To talk through IVA Pros and Cons with those who provide IVA help day in, day out, speak with our team: 0808 156 7718.