If you are in debt and it has become very difficult for you to handle your debt and repayments to a point that you cannot cope effectively anymore, the best option you can consider is setting up an IVA (Individual Voluntary Arrangement).
An IVA typically binds you in an agreement with the creditor and allows you to pay only what you are able to afford realistically.
What is an IVA (individual voluntary arrangement)?
An IVA (Individual Voluntary Arrangement) is an agreement that allows you to pay a given amount of money every month towards paying off your debts. The amount of the total debt is reduced as a result of these set monthly payments and what is left is written off after the term of the contract.
At the end of the term, providing you have kept up repayments, you will be considered debt free.
An IVA is certainly a viable alternative to bankruptcy and can cause you far less damage in terms of credit referencing.
The monthly repayments actually contribute to improving your credit history and thus can set it back on track rather than the IVA doing it any harm. This is completely the opposite effect to a bankruptcy order.
How is an IVA Arranged?
An IVA must be set up by an Insolvency Practitioner who is certified (licensed) to set up such agreements and they will give you all the information on IVA debt solutions that you require.
When you set up your IVA, your Insolvency Practitioner will approach your creditors and make an official proposal which will settle your debts to them.
You will be expected to provide information relating to all your unpaid debts and your salary and expenses each month in order for a monthly repayment amount to be calculated. This will be based on your monthly disposable earnings and it will be much more reasonable than your previous repayments.
When it is settled you will then start making payments towards your IVA. The company that you have your IVA with will then make monthly repayments to creditors.
During this time debt interests are usually frozen and your creditors are not able to make any official demands to you.
The soon you make your final repayment to your IVA company the rest of your debt will be written off, and it can be up to 65% of your total debt, according to your situation.
Benefits of an IVA (Individual Voluntary Arrangement)
Until the introduction of IVAs, bankruptcy was the harsh reality for individuals who lost control of their debts.
Bankruptcy is an expensive and public affair. A debtor will lose all control over their assets and their credit rating will suffer greatly. In contrast, as a solution to debt problem, an IVA offers many benefits:
1. A defaulter's disposal earnings will be taken into consideration when repayments are calculated. Thus, it's obvious that the total debt repayment is reduced. Provided the conditions of the IVA have been followed, any unpaid debt will be written off at the end of the IVA term.
2. From the date of agreement all charges and interest on debt are frozen.
3. Fewer restrictions apply than with bankruptcy. For instance, a defaulter with an IVA will not incur the risk of having their property terminated.
4. An IVA is not published in the local newspapers, nor is a defaulter required to inform his/her employer. However all IVAs are listed with the department of trade and industry, which is available for public inspection, when requested. An IVA will also be listed on a debtor's credit file.
Even if a defaulter has ben declared bankrupt an IVA may still be an option. However, it's worth noting that ideally a defaulter should secure an IVA before bankruptcy is declared, to avoid the excess costs.
With an IVA a defaulter will maintain some say in the control of their assets. A defaulter must make their best repayment offer to their creditors.
Providing assets are not considered surplus to needs, a defaulter will not be required to sell them.
A debtor will not be asked to sell their houses, but will be expected to re mortgage it to release equity that can be used to fund repayments.
It's also possible to exclude some other assets from being reclaimed, such as a motor car or life assurance.
Successful completion of an IVA (Individual Voluntary Agreement) will result in a certificate of compliance and will improve a defaulter's credit rating.
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