If you have a significant amount of unsecured debt and find yourself in a situation where you’re absolutely incapable of paying it all back, then an IVA can really be a fantastic debt management solution for you. If you’ve been looking for a way to settle your debts at a fraction of the amount that you actually owe, then continue reading for some of the main benefits to applying for and using an IVA.
What is an IVA?
An Individual Voluntary Arrangement is a formal agreement between you and your creditors, in which you agree to an arrangement that involves making reduced payments towards your overall debt. Once you apply for the IVA, the notice will be sent to all your creditors, and they can then choose whether they want to accept the agreement or deny it. In this way, all of your debt is combined into one monthly payment, instead of several to different companies. Keep in mind that this monthly payment amounts to only a percentage of what you actually owe — the lender will agree to write off the rest of the balance, allowing you to pay less than what you actually owe. After 5 years (60 months), all of your debt is seen as being settled as far as your credit history is concerned. Because of an IVA’s formal nature, this particular type of debt management solution must be set up and organized by a licensed, professional organization. IVAs are legally binding, and are part of the government’s Insolvency Act of 1986.
Applying for an IVA
How do you go about applying for an IVA? First of all, to qualify for an IVA, your total debt must be unsecured, and in excess of £15,000. In addition, you must owe at least three different creditors, like a bank or credit card company. Some organizations also provide assistance for debts that are less than £15,000, or if you owe to less than three creditors. Keep in mind that only residents of England or Wales are able to apply for an IVA. A Trust Deed is a similar opportunity that is available to Scotland residents. For Northern Ireland residents, look up a Debt Management Plan.
Can an IVA Help You Avoid Bankruptcy?
Yes, it can! An IVA is different from filing bankruptcy because, in an IVA agreement, you won’t have to sell your house or any other major assets, like your vehicle (see Wikipedia’s entry: http://en.wikipedia.org/wiki/Individual_Voluntary_Arrangement). As a matter of fact, by using this type of debt management solution, you have a much better chance of negotiating a settlement with your creditors — with bankruptcy, your assets are basically handed over to the magistrate as soon as your proceedings come to court. As long as you can make the monthly payment that you agree upon, you don’t have to give up any of your possessions!
In addition, an IVA is looked upon much more favorably than bankruptcy. As opposed to filing bankruptcy, you don’t have to notify your employer or landlord, and you don’t have to post an embarrassing notice in the newspaper. An IVA doesn’t threaten your career if you’re serving in the armed forces, or have another professional career, while bankruptcy could potentially cost you your job or license. You won’t be barred from becoming a company director with an IVA, either.
Benefits of an IVA
So what are the benefits to using an IVA? In addition to everything mentioned above, you’ll enjoy all of the following from this debt management solution:
- Only pay what you can actually afford. While many debt payments can become overwhelming, to the point where you’re literally incapable of paying it all, an IVA will help you to establish one monthly payment based on your income, and not what you owe.
- An IVA prevents legal action against you. You won’t have to worry about bankruptcy, and as mentioned above, no one can take your home, vehicle, or other major assets.
- All interest and other charges stop immediately as soon as the plan is approved. This means that you don’t have to worry about compounding interest (interest on top of interest) with credit card debts and other similar debts.
- Your creditors will stop contacting you and harassing you about your debt. This alone can be a great reason to apply for an IVA!
- You will be completely debt-free in 60 months. Even if your monthly payments haven’t amounted to what you actually owe your creditors (they usually don’t), the rest of your debt will be completely written off and erased!
- See also http://www.ivazone.com/IVA/IVA-benefits.html
Disadvantages of an IVA
While there are certainly lots of benefits to applying for this type of debt management solution, there are also some drawbacks. You’ll need to take the following into account before you apply for an IVA.
- If you own a home, you may need to give up some of the equity in your home halfway into the final year of the agreement, as part of the terms of the IVA. The amount will vary depending on how much debt you have.
- Applying for and receiving an IVA will negatively affect your credit rating for six years — the five years of the IVA, and then a year afterwards. Of course, it may be better to take the hit from the IVA than risk more bad marks from not paying your debts at all.
- If you enter into an IVA, you’ll end up paying more of your debt than if you had chosen to file bankruptcy. This isn’t a big deal to those who want to avoid bankruptcy, though.
- You won’t be able to obtain any additional credit during the IVA.
- If you can’t make the payments of the IVA, then there is a very high chance that you will be forced to file bankruptcy.
Keeping these things in mind will give you a realistic expectation of your results before you apply for the IVA.
As you can see, an IVA is a great debt management solution. It’s helped thousands of people to finally become debt-free, so if you want to join that crowd, you would be wise to look into applying for an IVA today.
