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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 on your physical wellbeing as well.
In this situation, an IVA might be just what you need to regain financial control.
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.
There are multiple benefits to an IVA. These include:
Your advisor calculates the amount you can pay comfortably once your other expenses have been taken into account.
Assets such as your home or vehicle are protected during an IVA. They cannot be auctioned by creditors, and they can’t force you to sell them to repay your debts.
Once you have agreed to an IVA, creditors can no longer contact you directly to enquire about payment. However, 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.
Most IVAs last five to six years, after which much of your debts will be written off.
Once the IVA comes into effect, your interest rates and charges are frozen. This helps prevent the debt from increasing further.
An IVA is legally binding, which means you and your creditors must follow the agreed terms.
As long as you stick to the terms of your IVA, creditors are not allowed to take legal action against you. This includes sending bailiffs to reclaim debt.
Although the topic of debt should not be a taboo generally, an IVA is generally viewed better than some of the alternatives, such as bankruptcy.
Although some occupations won’t allow employees to join them if those individuals have been made bankrupt, the same typically cannot be said of an IVA.
However, as with any financial product, there are negatives to IVAs as well:
An IVA will negatively impact your credit rating. Once the IVA has ended, it will still stay on your credit file for a further year. As a result, you will probably find it hard to obtain future loans or other financial products.
Once an IVA comes into effect, the agreement is listed on a public database called the Insolvency Register. This is searchable by anyone. Although, in practice, few people are actually going to use this system.
Payments to the IVA must be made. Although the agreement is somewhat flexible, you will need to budget for the next few years to ensure that you continue making repayments.
You may be required to release equity from your home as part of the agreement. If this isn’t possible, the length of your IVA might increase from five years to six.
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 could be ideal.
Contact us today with any queries or concerns you have, and we will be happy to answer them for you.
Debt write off applies to unsecured debts and on completion of an IVA. A debt write off amount of between 20% and 80% is realistic, however the debt write off amount for each customer differs depending upon their individual financial circumstances and is subject to the approval of their creditors.
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Free money help and advice can be found at the MoneyAdviceService.org.uk