What you Need to Know about Individual Voluntary Agreement

Individual Voluntary Agreement or IVA can be of great help to businessmen, especially those with tricky debts and other financial challenges to face.

Technically, an IVA is an agreement that is made with your creditors to pay off your debts over a set period of time. It is definitely one option that you can use to pay off your debts. Basically, it is a formal, legal debt solution. This means that it is approved by the court, and as such, your creditors have to stick to it.

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If IVA is something that you want to consider for yourself, you need to know more what it is, who can avail of it, and the pros and cons of this debt solution.

IVA Basics

An IVA is something that just doesn’t happen. It a well thought of plan and must be done professionally. IVAs must be set up by a qualified person, called an insolvency practitioner. This could either be a lawyer or accountant. The insolvency practitioner charges a fee for the IVA, and they don’t come cheap. Then again, ultimately, the insolvency practitioner totally deals with your creditors throughout the life of the IVA.

IVA

Here’s how IVA works: if you decide to get an IVA, you need to work out a repayment plan with the insolvency practitioner. The repayment plan is discussed with the creditors, and if they agree, you need to pay back a set amount each month, usually for five years. Your monthly repayment can then be paid directly to the insolvency practitioner who would then distribute the money to your creditors. In this way, some of your monthly payment may be kept by the insolvency practitioner to pay for their fees.

Take note that if you go to a debt management company for an IVA, you need to find out about how much they charge before you make your decision. A debt management company is likely to be more expensive because they charge a fee on top of the insolvency practitioner’s fees. Then again, there are companies that you can inquire with and who may give you a better practitioner fee depending on your budget. You can start off with Creditfix – Individual Voluntary Arrangement in order to get a head start with this highly viable option.

Generally, you need to take note of the following before deciding if an IVA is good for you:

  • Your savings and personal pension payments are usually used to pay your creditors.
  • If you own a home, you may have to re-mortgage it.
  • It may affect your job, for example if you’re an accountant or a solicitor.
  • If your financial circumstances drastically change, you could struggle to keep up your IVA payments. If your creditors won’t accept less, the IVA might fail, and you might head for bankruptcy.

The Pros:

  • IVAs are legally binding on your creditors: Your creditors can no longer take any further legal action against you; they also cannot contact you either by post or phone. If approved, the creditors have to abide by the IVA as agreed. This includes writing off a percentage of your debt.
  • Affordable payments: You need to make an affordable monthly payment that takes into account all essential payments in your budget.

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  • You’re not forced to sell your own home, or any big property: In an IVA, you would not be forced to sell any of your major properties. Then again, you would be expected to attempt to re-mortgage your house, if any, 6 months before the IVA ends.
  • You can keep certain assets: Speaking of being forced to sell any big property, an additional advantage of IVA is that it is possible that you can retain assets such as vehicles. Extra IVA payments may also be offered in place of retaining other assets, and your creditors have to decide if they agree to this.
  • IVAs are time bound: Most IVAs have a time frame of 5 or 6 years. However, this may be extended by 12 months if you have equity in your property which you cannot release for the benefit of creditors.
  • You pay something back: IVA clients often don’t want to go down the bankruptcy route as they realize that their creditors, in most cases, won’t see any return on the money borrowed. However, in an IVA you would offer to repay a percentage of the debt owed to your creditors, showing you have made your best efforts to repay as much as you can.
  • They are adaptable if things change during the term of the IVA: 5 or 6 years is a long time, and during this time, there may be a number of changes in your circumstances.  IVAs can be really flexible, and if required, you should be able to vary the terms of the IVA with the agreement of your creditors.
  • You have support: A licensed Insolvency Practitioner can guide you through the process. Their support and experience should act as a reassurance through the course of the IVA.

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The Cons:

  • An IVA can be strict: You are asked to stick to a budget for 5 or possibly 6 years, and this come with a review of your income and expenditure every 12 months to make sure that the payments still remain affordable for you.
  • An IVA could affect your job: An IVA is a form of insolvency and could affect some professions; you would need to check the terms and conditions of your employment.
  • Rejection and failure are still lurking in the shadows: Creditors could reject the proposal outright, or the IVA could fail at anytime due to a significant change in your circumstances that could mean you are unable to pay. This is something that you should always take note of, and it is in direct relation to the first con of an IVA being strict.
  • It still has criteria to follow: Unfortunately, IVA is not for everyone, so you need to take advice to ensure that this is indeed the best solution for you. Also, this can be dependent on who your majority creditors are and their attitude towards IVAs.
  • It may hit your Credit Score: An IVA stays on your credit file for 6 years from the day it starts. You won’t be allowed credit above £500 for the duration of your IVA, and it may be difficult to gain any credit until the IVA has cleared from your credit file.
  • An IVA is a long term commitment: 5 or possibly 6 years is a longer time frame than bankruptcy. People going bankrupt may be discharged after just 12 months and have to pay contributions for 3 years. An IVA is a legally binding agreement for both you and the creditors which may contain legal sanctions to make sure you stick to the contract.

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  • It is a public record: An IVA is a form of insolvency, so it is listed on the Insolvency Service website. This database can be searched by anyone.
  • It entails fees: All IVA firms have to charge a Nominee and Supervisory fee; this is taken from payments you make into the IVA and is not an additional cost to you. Some IVA firms charge an upfront fee for the drafting of an IVA proposal.
  • Bankruptcy may be near: If your IVA does fail, there is a risk of bankruptcy proceedings.

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