Individual Voluntary Arrangements (IVAs) were introduced in 1986 and provide an alternative to bankruptcy when seeking to manage large debts.
IVAs are not for everyone seeking help with debt payments. In order to effect such a plan, you must have at least £15,000 of debt and at least three creditors. The minimum monthly repayment is £200. They should only be used where going bankrupt is the only other realistic option, if this is not the case you should explore other debt management alternatives.
Arranging an IVA requires the involvement of a licensed Insolvency Practitioner. The fees involved in an IVA are included in the monthly repayments and do not need to be paid up-front.
An IVA allows you to avoid repaying debt, as the proportion of your debt you cannot afford to repay is written off, while your insolvency practitioner negotiates with your creditors as to the amount you can afford to pay back each month. The creditors must agree to the proposed terms of the IVA at a special meeting - agreement is required from creditors who represent at least 75% of the debt - but agreement is often secured because the creditors realise they will recoup a higher percentage of the debt than they would in a bankruptcy situation. Once agreed, an IVA is legally binding, including on creditors who did not vote in favour of acceptance.
Secured loans are not usually included in an IVA, and court fines and council tax arrears cannot be included.
Unfortunately some IVAs are unsuccessful, but if yours does work out, you can be debt free in five years - faster if you can make lump sum payments. With a successful IVA, you avoid some of the unpleasant consequences of bankruptcy, such as losing your home and other assets, however if there is equity in your home this may still need to be applied to the IVA in the final year. An IVA certainly has a major impact on your credit rating for a period of six years after completion of the arrangement, but not as severe as the impact a bankruptcy would have.
If your circumstances change adversely while an IVA is in force, you must contact your insolvency practitioner immediately. An attempt is then likely to be made to persuade your creditors to accept revised terms of repayment, but they are not obliged to accept these terms and your IVA may fail if you cannot maintain the payments originally agreed. If you enjoy a windfall during the period of your IVA, you may be forced to use the proceeds to reduce your debt.
If your IVA fails because you cannot maintain the agreed payments, you may need to file for bankruptcy.
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Nik Jones is a professional Debt Advisor at Debt Local. For any type of debt advice or debt management help, call for free on 0800 044 5659.
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