What is an IVA?

IVA stands for Individual Voluntary Arrangement.

Essentially, it’s a formal agreement between you and your unsecured creditors, allowing you to make more manageable payments towards your total amount of debt. The result being that you pay off a percentage of that total and, after about 60 months, the debt is considered settled. Your level of monthly repayment is determined by careful examination of your income. After setting up an IVA, providing you meet your payment schedule, the creditors are legally prohibited from adding other charges or further interest to your debt.

An IVA can be set up to include personal loan debts and outstanding credit card balances. You make payments which are based on an amount that you can afford. Once the final payment is made, any remaining debt is legally written off.

Other debt solutions may allow you to make reduced monthly repayments but you’ll still have to pay off the entire amount. So, the payment schedule may last a very long time, and could take you a longer period to pay the debt off. An IVA is also legally binding, therefore your creditors cannot continue adding more interest and other charges to your account.

There can be fewer stigmas attached to IVAs too, in comparison to other debt solutions. IVAs are generally more private arrangements,  as opposed to bankruptcy, which is advertised in local newspapers and in the London Gazette. Both IVAs and bankruptcies are listed publicly on the Personal Insolvency Register and are recorded in the files of credit reference agencies. It’s not just the privacy aspect that should mean you decide on an IVA instead of an alternate debt solution; another big advantage of the IVA is that it can protect your property. You might have to remortgage to release some of the equity but you should be able to keep the property.

Of course, many people who are struggling with debt also consider bankruptcy. This means that their assets will be sold off and the money distributed among the creditors.. There are certain assets that are exempt in this bankruptcy settlement; tools of trade, pensions, ordinary household contents, even a car of reasonable value. In the majority of cases, bankruptcy ends after a year, at which point the slate is wiped clean of debt but note of the bankruptcy order will stay on your credit report for six years.

Deciding between bankruptcy and an IVA will depend on your circumstances. As stated, IVAs often have a far lower profile than declaring bankruptcy and shouldn’t put your home at risk. There’s no right or wrong answer, it depends how you feel about the stigma of bankruptcy and the equity you have in your home. If you fail to keep up with the repayment schedule of your IVA your creditors could start bankruptcy proceedings against you, so it is essential that your IVA repayment is affordable to you.

Don’t enter into any agreement without taking professional advice about the best course of action for your circumstances.