Having debts can seem overwhelming and when you’re in financial trouble, it’s often difficult to know where to turn.
8.3 million people in the UK are now struggling with problem debts, but many people aren’t aware that there is a government scheme in place which can help them write off up to 85% of their debts.
Individual Voluntary Arrangements (IVA’s) were introduced by the Government in the 1986 Insolvency Act as an alternative to bankruptcy.
Bankruptcy usually involves all your assets, including your car, home and other valuables, being sold in order to pay off your creditors. Bankruptcy usually lasts for one year, although it will be noted on your credit file for six years, meaning that banks and other financial organisations to which you apply for accounts and services will be able to see it, and any credit applications will usually be refused.
In contrast, an IVA offers a more preferable solution, as it gives you more control of your assets than bankruptcy.
An IVA is an agreement with your creditors to pay all or part of your debts, giving a person with debts above £5,000 an opportunity to agree reduced payments with their creditors for a fixed term. If you live in Scotland the equivalent solution is a Trust Deed.
Unlike bankruptcy which lasts a year, an IVA will usually last for five or six years, during which time you will pay an agreed amount every month to an insolvency practitioner, who will divide this money between your creditors.
With an IVA, you agree a new monthly payment with your creditors – one that means you can afford all your other essential outgoings as well. You’d pay this single lower amount and, after this time, if everything has gone according to plan, the rest of your unsecured debts on the IVA would be written off.
An IVA can only deal with unsecured debts, such as bank loans, credit cards, store cards and overdrafts. It may be an appropriate option for you if you can’t keep up with the contractual payments you agreed to when you took the credit out.
You only have to pay an agreed percentage of your debt back. You will still be paying part of your debt back with an IVA which will be a higher amount than creditors are likely receive in bankruptcy.
You will be free of debt in a set time. In an agreed number of years, you will be debt free and able to get on with your life.
Your creditors will stop calling. Once enough of your creditors agree to it – at least 75% in value of the creditors that vote must do so – an IVA is legally binding. That means they cannot take any further legal action or contact you to demand payment.
You won’t have to sell your home. However, you could be expected to re-mortgage and free up some equity for your unsecured creditors – our advisors can explain this in more detail.
It’s affordable. Your monthly IVA repayments will depend on your specific income and outgoings, meaning it will be an amount you can afford each month.
The contractual interest and charges on your unsecured debt will be frozen, so you can get on with making payments.
If you’ve been feeling down and anxious about your debts for a while, that worry may have taken it’s toll on your outlook on life and your relationships. An IVA can, in some cases, make a real positive difference to your life and your partner’s life, as you’ll both know the debts are being taken care of.
An IVA will also allow you to work towards a date when you’ll be debt-free. If you have any big plans with your partner, like buying a house or saving to go travelling together, it can help to know when your debts will be dealt with so you can focus on your joint goals in life.
Provided the terms of the proposals have been fully carried out, your creditors will have no further claim against you and the balance of any unpaid debts is written off. You will be provided with documentation to confirm that you have satisfactorily completed the IVA and a report will be sent to your creditors.
Not all loans can be included in an IVA agreement and your credit file will be affected for a period of 6 years. Failure to keep up with IVA payments may result in your creditors filing for your bankruptcy, so make sure you are fully aware of the risks involved before entering into an IVA or any type of financial agreement.
There is more information about the advantages and disadvantages of Individual Voluntary Arrangements here.
Speak to one of our Money Advisers today to discuss whether an IVA is the best option for your circumstances.