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How Does an IVA Work?

How Does an IVA Work?

An IVA is a form of insolvency which can help write off debt and bring you back in control of your finances. Here we discuss exactly how the IVA works – and whether it’s right for you.

An Individual Voluntary Arrangement (IVA) is a legally binding agreement between you and your creditors to repay what you can over a reasonable period (usually five to six years). This is an extremely popular form of insolvency and is used by thousands of people every year.

How do you get started with an IVA?

As an IVA is legally binding, it must be set up by a qualified professional. This individual, called an insolvency practitioner, primarily works on your behalf to handle all the complicated details.

During the set-up process, you and this professional will work together to work out how much you owe and how long the IVA should last. The insolvency practitioner will also take down details such as any assets you might have, your income, and which lenders you owe money to.

During this time, it may be possible to apply for an interim order. This agreement is something which prevents your creditors from taking additional legal action while the IVA is being considered.

Once that’s done, the practitioner should have a really good idea as to whether an IVA would be the best solution for you. If not, he or she might recommend an alternative – such as bankruptcy. Assuming the agreement has a good chance of success though, the IVA process continues.

Setting up an IVA – Speaking to your creditors

After the initial set-up, the insolvency practitioner will get in touch with your creditors. For the IVA to become active, the creditors who hold at least 75% of your total debts must agree to it. Providing the IVA gives them a better return than bankruptcy, they should agree to the terms. It’s normally quite rare for lenders to refuse but – if they do – it’s not the end of the world. You’ll usually be allowed to revise your proposal and try again.

How does an IVA work? – The day-to-day

If the IVA is approved, the details of the agreement are distributed to your creditors. Interest rates and charges are frozen, your lenders shouldn’t directly contact you, and you’ll be well on your way to dealing with your debts.

Before this though, your insolvency practitioner should have discussed payments with you. You ought to know exactly what you’ll be repaying and when for the next few years. This individual is now tasked with making sure everyone sticks to the terms of the IVA – this includes yourself and creditors.

Monthly payments should always be made for the entirety of the scheme. Once this period expires though, any remaining debt is written off.

Is an IVA right for me?

An IVA may be right for you under the following circumstances:

  • You want to write off your debts.
  • You want someone else to deal with creditors on your behalf.
  • You don’t realistically see a way to repay your debts.
  • You are happy for a debt solution to last at least five years.
  • The monthly repayments are affordable.

Assuming those sound like your situation, get in touch. We can help determine if you qualify and start getting the ball rolling on your IVA application.

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