IVA Pros and Cons

IVA Pros and Cons

An IVA freezes your debts so you can pay your creditors back over an agreed period.

Debt can impact a person’s life positively or negatively, depending on how it is managed. For example, debt can build your credit score and help you achieve your dreams, such as getting on the property ladder. However, if debts get out of hand, they can take a toll not only on your finances but your physical wellbeing as well.

In this situation, an IVA might be just what you need to regain financial control.

What is an IVA?

An IVA stands for individual voluntary agreement and is an arrangement which freezes your debts so you can pay your creditors back over an agreed period. Initially, IVAs were used by businesses, but have since gained popularity with individuals. They also protect you from legal action, such as being declared bankrupt or taken to court for defaulting on payments.

Pros of an IVA

There are multiple benefits to an IVA. These include:

  • You only pay what you can afford – your advisor calculates the amount you can pay comfortably once your other expenses have been taken into account.
  • It protects assets such as your home or vehicle from being auctioned by creditors, and they can’t force you to sell them to repay your debts.
  • It gives you a fresh start – most IVAs last five to six years, after which much of your debts will be written off.
  • It protects you from harassment – once you have agreed to an IVA, creditors can no longer contact you directly to threaten you, but you will have to deal with an insolvency consultant.
  • Your debt amount is fixed, so your creditors cannot make additional charges or add more interest to your loan.

Cons of an IVA

However, as with any financial product, there are negatives to IVAs as well:

  • During the IVA, you may find it harder to obtain credit.
  • An IVA is listed on the government insolvency website, and the public can access it.
  • It is legally binding. Therefore, you cannot terminate the contract or you risk being declared insolvent.
  • You will have to stick to a strict budget and your spending and income will be reviewed annually.
  • Not everyone is eligible for an IVA as some professions do not allow their employees to go bankrupt or enter an individual voluntary agreement.

Is an IVA right for me?

An IVA could be suitable for you if you owe money to more than one creditor or have accumulated at least two debts. If your debts total more than £5,000 or you do not wish to deal directly with your creditors, an IVA should be ideal.

Contact us today with any queries or concerns you have, and we will be happy to answer them for you.

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