As with any other type of arrangement (financial or otherwise), an Individual Voluntary Arrangement has a mixture of IVA pros and conss – all of which need to be carefully considered prior to entering into one.
In this article we take a look at some of the more common issues which tend to get considered during the deliberation stage and often swing a decision one way, or another.
First! The main advantages!
- Perhaps one of the biggest advantages of an IVA is that you’ll be completely debt free within just 4 or 5 years! By simply making one affordable monthly repayment through your chosen advisor you’ll be able to banish all your debts and start completely anew once the arrangement ends.
- By entering into an IVA it’s highly likely that you’ll repay a lot less to your creditors than you would have done had you entered into separate arrangements with them. This is because, once the IVA is accepted by the vast majority of your creditors (75%) then they’ll have to accept a reduction on the amount you pay back. What’s more, they can’t chase you for the ‘top up’ amount once the IVA ends.
- In addition to not being able to contact you upon completion of the IVA, creditors are also unable to contact debtors whilst the IVA is in place. This means no more phone calls, no more letters and no threats of further enforcement action. For most debtors, of course, this is a huge advantage in itself and certainly relieves a lot of stress.
- Once the IVA has been agreed, creditors are also unable to apply any additional charges (such as interest, or late payment fees). This means that the value of the debt can’t possibly go up; nor can you be pursued for anything above and beyond what you’ve agreed to repay.
- By structuring all repayments through just one source i.e. the insolvency practitioner, you don’t have to worry about paying numerous creditors each and every month. This will all be taken care of by someone else who will simply distribute your money repayment accordingly. It really is as simple as that.
- For homeowners, an IVA is also a great option of retaining both their home and contents. Once an IVA has been secured then creditors can’t seek a sale of the property nor can they touch any other assets, such as family vehicles. The only exception to this rule is where there is a substantial amount of equity. In this case, you may (but only ‘may’) be required to re-mortgage the property in order to release funds; although this isn’t necessarily the case and you should certainly seek further advice on it, depending on your individual circumstances.
- Fortunately, there’s now less stigma attached about going into an IVA. It won’t be advertised in the local newspaper nor will it be branded as ‘newsworthy’ for the benefit of nosy neighbours. Whilst details of the IVA will appear on the Personal Insolvency Register (which is available to view free of charge online), there’s generally not much reason for people to do this and unless you’ve been shouting it from the rooftops, no-one ever need know.
- If you’re paying into a private pension then it shouldn’t be affected by an IVA – in fact, you’ll still be able to pay into it once you’re able to – meaning you can plan ahead for the future.
- With some arrangements, it’s certainly possible to take payment holidays. Whilst these generally aren’t encouraged, most debtors are reassured to know that they’re there, if ever they need to be used. The months you’ve missed can simply be added on to the end of the IVA – although remember, the object of the game is to get debt free as quickly as possible and not to prolong the process.
- Setting up an IVA can be done fairly quickly and easily. Whilst it’s a formal arrangement and legally binding the process is straightforward and can be implemented in no time at all, without you having to wait weeks on end, thus adding to the stress of being in debt.
- Unlike bankruptcy, there are no initial set-up costs for an IVA. You won’t have to pay anything upfront or at the end of the arrangement either. Whilst IVA’s can be expensive to set up, the cost of it can simply be added to the arrangement and repayments can be incorporated into your monthly payment so you shouldn’t really notice any difference.
And the disadvantages …
- An IVA will remain on your credit file for 12 months after it ends so, if your arrangement is repaid over 4 years, it’ll still appear 5 years down the line which may make it difficult for you to obtain credit. What’s more, it’s highly unlikely that you’ll be able to secure credit during the arrangement, so just be aware of this.
- In order to qualify for an IVA then you’ll have to meet certain criteria. For example, you’ll have to have at least £5,000.00 worth of unsecured debt and must owe this money to at least two or more creditors. Alternatively, you must have two or more lines of credit (for example, a credit card and an overdraft). In order to check whether you qualify then it’s advisable to speak with a few different insolvency practitioners as the criteria may vary slightly between each and some will be more flexible than others.
- Whilst you’ll only ever be asked to make a repayment that’s affordable to you, do bear in mind that most companies require a minimum repayment of £100.00 per month (although again, this varies between each provider). It’s imperative you ensure you can afford the amount you agree on because once you’ve entered into the IVA then you won’t be able to change it.
- As we’ve already mentioned, you may also be required to release any equity in your home although that’s certainly not to suggest that you’ll have to sell it. Since your home is most likely the most expensive asset you’ll ever own it’s important to protect it and get the right advice. So do be sure that you’re clear on this before committing to anything you’re not sure about.