What are the pros and cons of an IVA?

November 18, 2017

An Individual Voluntary Arrangement, or IVA, is a commonly-used formal debt solution that helps people escape unmanageable debt. It usually lasts for five or six years, at the end of which time any remaining debt within the agreement is written off.

IVAs work by making a single, affordable monthly repayment to your IVA provider. This is then distributed to creditors in the pre-agreed ratio, so the creditor owed the most money receives the highest proportion of each payment.

To be eligible for this debt solution you must earn a regular income, and have some money left over after all the essential household bills have been paid – usually a minimum of £100. IVAs are also generally aimed at people who owe more than £10,000 in unsecured debt.

So what are the benefits and potential drawbacks of an IVA?

IVA pros

• You don’t have to pay back all of your unsecured debt with an IVA – only the proportion agreed with your creditors – the remainder is written off
• There’s a defined term when you enter an IVA, so you know when you’ll be debt-free
• An Individual Voluntary Arrangement is legally-binding, so once your creditors have agreed to the terms, they won’t be able to contact you again or take any further legal action, such as making you bankrupt.
• You only make a single payment per month towards your debts
• Your IVA provider ensures this repayment is affordable
• Interest and charges on the debt will be frozen
• You’re not obliged to sell your home as part of an IVA
• It’s a flexible arrangement, in that if your circumstances change, payment amounts can go up or down
• You have the support of a licensed insolvency practitioner throughout the period
• Bankruptcy is avoided as long as you comply with the IVA terms and conditions

Cons of an IVA

• You need to stick to your budget for five or six years
• Secured debts aren’t included in an IVA
• An IVA remains on your credit file for six years, and may negatively affect your ability to borrow for some time after
• You won’t be allowed access to more than £500 of credit whilst the IVA is in force
• Your details will be listed in a public register of insolvencies
• Your job may be affected – some employers don’t allow their employees to be insolvent, so you’ll need to check your employment contract
• Although you won’t be forced into selling your home, you may need to remortgage to release equity towards the end of the IVA term, for the benefit of your creditors

As you can see, there’s much to consider prior to entering an Individual Voluntary Arrangement. Our experienced team at Northern Ireland Debt Solutions can determine whether an IVA is the most suitable debt option for you. We’re part of Begbies Traynor Group, the UK’s largest professional services consultancy. Call one of the team to arrange a free same-day meeting to discuss your situation, and establish your best options for escaping debt.

Help for individuals and sole traders in Northern Ireland affected by Coronavirus

20th March 2020

If you’ve been affected by the coronavirus pandemic and are struggling to meet your financial demands, there are various steps […]

Read more

What is the role of the Official Receiver and Trustee in a bankruptcy process?

17th January 2020

The Official Receiver (OR) and Trustee both play key roles in a bankruptcy process, and are appointed by the Department […]

Read more

What debts are included and excluded in an IVA?

16th January 2020

An IVA is a flexible way to pay off debts within a defined timescale, and can be a good alternative […]

Read more

What are income payment agreements in a bankruptcy?

15th January 2020

When you enter bankruptcy control of your assets transfers to the Trustee, but there’s a further obligation that can arise […]

Read more

What are the advantages of an IVA?

14th January 2020

Individual Voluntary Arrangements (IVAs) are formal insolvency procedures that allow you to deal with serious debt, and offer an alternative […]

Read more

How does bankruptcy affect a husband or wife?

13th January 2020

Bankruptcy has wide-ranging effects on you as an individual, but potentially also on your husband or wife. If you have […]

Read more