It’s really important to know about IVA’s Pros and Cons. An IVA, which stands for Individual Voluntary Arrangement (IVA), is a legally binding agreement between you and your creditors in the UK. Basically, It outlines how you’ll repay your debts over a set timeline.
With this article, we have discussed enough pros and cons of IVAs that you can use in making an educated decision. So, let us walk you through them…
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Yes, choosing an IVA is a popular debt solution among people living in the UK. But keep in mind it does not solve every debt issue that it binds with.
Therefore, it’s better to have a full picture of the Pros and Cons before you jump into deciding to sign up for an IVA debt Solution. For that, Let us guide you through this article about the pros and cons that you need to be aware of before choosing an IVA debt solution.
Pros: Advantages of selecting an IVA
Below is a list of advantages you could have due to choosing an IVA plan.
An IVA offers a relatively cost-effective solution compared to other alternatives you might be considering. And it is particularly beneficial because you’ll have an insolvency practitioner closely guiding you, ensuring that you’re treated fairly throughout the process.
You can rest assured that you won’t be pressured into making payments beyond your means, as your insolvency practitioner will prevent this from happening. Your only commitment will be to make affordable monthly payments within your budget.
Furthermore, an IVA can shield you from creditors pursuing legal actions like initiating bankruptcy proceedings or filing a court application for payment default. You won’t even need to interact directly with your creditors anymore, as your insolvency practitioner will handle these communications on your behalf.
IVA agreements last for 5 years (60 months) in general. Then, at the end of this period,
An Individual Voluntary Arrangement can only be ended after a duration of five years only if you own a home and consent to explore the option of remortgaging to release some of your home’s equity. This released capital will then be utilised to settle as much of the remaining debt as possible.
Alternatively, you may have the option to make a one-time huge payment to terminate the IVA. Then, any remaining debt will be written off.
In the event that you do not own a home, you will be required to make a huge payment to clear your debts or extend the IVA for an additional year, making it a total of six years. After the sixth year, any outstanding debt will be erased. And you will be relieved from the IVA.
IVA debt solution is really helpful if you have multiple huge debts to multiple Creditors and have difficulties in coming up with payments to each of them.
Here, all your debts will be consolidated into a single total, and you will be required to pay a single monthly payment till the IVA period ends. Your single payment will be collected by an Insolvency Practitioner. And he will be responsible for distributing a portion of that monthly payment among all your creditors.
An insolvency Practitioner is the person who will help you in arranging the IVA in the first place with all of your creditors. So you do not need to be worry about them thinking whether they might do the job correctly.
The specific monthly payment that you are required to repay under the Individual Voluntary Arrangement will solely depend on your personal financial situation. Therefore, that monthly payment could begin as low as £70 per month.
Your creditors are not allowed (bound by law) to get in touch with you in any form of contact method after signing up for an IVA. Simply, it means that hereafter, they will not:
This will help you in completely blocking your creditor’s
Suppose any of your creditors do get in touch (which is unlikely).
In that case, the insolvency practitioner company you hired will give you a document to send to the creditor to stop it from happening again. You can take legal action if they keep contacting you even after your notice. Keep in mind this scenario is highly unlikely to happen.
The place you are living in, your home, will be protected if you enter to an IVA with your creditors. Your property will be shielded when you enrol into an IVA. It will ensure that you won’t face the prospect of selling your residence or any of its possessions.
However, suppose your house holds a substantial amount of equity. In that case, there is a possibility that you may be requested to remortgage it to unlock funds toward the conclusion of your plan.
Your vehicle will not be taken away (protected by law from seizing or selling off) if it helps you deal with day-to-day life’s financial activities (for instance, if you rely on it for work) and find the money for the IVA payment.
However, even if your car isn’t necessary for your employment, there is still a possibility that you can retain ownership of it. This will hinge on the type of car you own and the current financing arrangement in place.
Adding new interests and additional charges to your debt will be stopped from the moment you enter to an IVA. It means you can continue making the monthly payment you agreed upon in the first place when you signed the IVA agreement.
Cons: Disadvantages of selecting an IVA
Below is a list of disadvantages you could face due to choosing an IVA plan.
Entering into an IVA will have a substantial and lasting impact on your credit score. The IVA record will persist on your credit file and will last a continuous negative influence for six years from the date it commences. It’s because, usually, IVA plans are fixed to end in 5 years and yet it is displayed in the credit file for an additional 12 months ahead.
Moreover, your name will be included in the Individual Insolvency Register, a publicly accessible database that signals your participation in an IVA to potential other lenders. This public listing, along with your diminished credit rating, will impact significant challenges when seeking any form of new credit while the IVA remains in effect.
Nevertheless, this isn’t a concern for the majority of the people. Many people are not actively seeking additional credit opportunities once they’ve regained control of their finances. It’s because they know taking new credits could potentially reintroduce the same financial challenges.
After all, It’s important to bear in mind that the repercussions of an Individual Voluntary Arrangement extend beyond its active duration. And it affects your financial affairs for a considerable period, even after its conclusion.
Debts like Student Loans, court fines, social fund loans and child support cannot be included in an IVA plan.
IVA was solely introduced to help individuals who are struggling with unsecured debts like:
Therefore, you need to check whether your debts are eligible for an IVA plan first.
It’s better to be aware of what debt types can be covered by IVAs. Dont worry. Your Insolvency Practioner assigned to managing the IVA plan will help you in this and guide you in all other IVA-related matters.
Your insolvency practitioner (IP) might suggest exploring the possibility of remortgaging your property to access funds if your home holds significant value. This option is applicable exclusively to homes that have been bought either outright or through a mortgage.
But keep in mind it is only viable if your credit rating meets the necessary criteria.
All your disposable income will be put towards making monthly payments for the IVA through an insolvency practitioner.
You’ll have to make a regular fixed payment amount. Missing one of these payments could result in IVA failure and leave you in a worse position. However, the payment is carefully calculated based on your income and expenditure to make sure that it’s affordable for you.
You will experience certain banking limitations while under an IVA. Specifically, you will be limited to having a basic bank account. It means you won’t have access to features such as an overdraft, a credit card, or a chequebook.
You need to secure a vote of agreement from your creditors, to whom you owe at least 75% of the total debt, in order to get approval for an IVA plan. Your creditors will not accept your IVA proposal easily unless it offers something more than they could gain by making you bankrupt.
In the end, your creditors hold the decision to give you approval for the IVA. There’s no shortcut way to bypass this process. The approval of your Individual Voluntary Arrangement proposal hinges on the votes of your creditors. Your proposal may not receive approval if they cannot see how an IVA would be more beneficial for them compared to bankruptcy.
Your insolvency practitioner (IP) will structure your IVA proposal to make it more appealing to your creditors than the prospect of bankruptcy. This is why a significant portion of proposals tend to be accepted.
However, we strongly advise seeking guidance from a qualified debt advisor when considering an IVA. It’s because getting into an IVA will still have repercussions on your credit rating.
Plus, all insolvency cases are documented in a Public Insolvency Register, although IVAs are not as publicly visible as bankruptcy. And It is accessible through an online search function.
You need to have at least £5000 of unsecured debt to 2 or more creditors and should have a regular disposable income in order to get approval for an IVA program.
Officially, there is no mandated minimum debt threshold. However, we typically suggest a guideline of £5000 because it is a commonly used figure by reputable IVA companies.
A decision will be reached by taking into account your specific circumstances on a case-by-case basis if your unsecured debt falls below £5000. You will either be encouraged to proceed with an IVA application. Or an alternative debt solution will be proposed to address your financial situation.
Discover your eligibility for an IVA now – click here> to take our quick online assessment and take the first step toward debt relief.
IVAs include a provision known as the “windfall clause.” A windfall refers to a significant sum of money that you might unexpectedly acquire while your IVA is in progress.
Windfalls can take various forms, such as lottery winnings or an inheritance from a deceased relative. You are bound by law to allocate 100% of any windfall you receive to your creditors in order to contribute to the repayment of your outstanding debt if you are currently in an IVA.
Importantly, this windfall contribution will not affect the amount or frequency of your monthly IVA payments. You will have to continue making payments based on the rate that you agreed upon in the first place.
You can generally be qualified for debt assistance as long as you can allocate a minimum of £80 per month toward your Individual Voluntary Arrangement (IVA). There is no fixed upper limit beyond £80. The amount you contribute depends entirely on your individual circumstances and what is financially feasible for you.
You need to collaborate with your Insolvency Practitioner (IP) to evaluate your financial situation and establish a realistic repayment amount during the IVA preparation process.
It’s crucial to provide honest and accurate information during this assessment. Otherwise, submitting false information is considered a criminal offence due to the legally binding nature of an IVA proposal.
The proposed amount must also be sustainable over the long term, even if your circumstances undergo changes.
Periods of recent unemployment can influence your creditors’ opinion regarding the feasibility of the proposed payments. Yes, it’s impossible to predict the future. However, this is a common reason for IVA failures.
An IVA might be a suitable option for you if you can meet the minimum requirement of £80 per month. However, it’s advisable to create a personal budget and seek professional advice to better understand your financial situation if you’re uncertain about your ability to contribute.
Do the Benefits of an IVA Outweigh the Disadvantages of an IVA?
The suitability of an IVA depends on your unique financial circumstances and the type of debt you have. It is advantageous if you possess valuable assets you want to protect from debt repercussions.
Bankruptcy can clear your debts in about 3 years if you aim for swift debt relief. However, keep in mind that your assets will not be safeguarded through bankruptcy. An IVA offers asset protection and is legally binding against creditors, although it may last up to 5 or even 6 years.
The Insolvency Practitioner who works on behalf of you ensures you get an affordable monthly payment plan tailored to your financial capacity.
Plus, you won’t have to directly interact with creditors at all. It’s because the Insolvency Practitioner you hired will deal with them on your behalf. And it will surely give you enough room to be free from your creditors’ agent’s stressful and harassing mixed interaction.
Your credit score will be affected during the IVA’s 6-year presence on your credit file. Surely, you may find difficulties in getting new loans and credit cards as your IVA agreement will be recorded in a public insolvency registry opened to view by anyone. We also suggest you to not seek new credit, at least until the IVA period gets finalised.
You can seek credit only in emergencies during the IVA. For that, you can get a consultation from your Insolvency Practioner (IP) to explore options.
Yes, ideally, IVAs ends after 5 years. But it extends to another 12 months if you cannot pay a huge lump of money at once at the end of 5 years. You can use this extended 12 months to build your credit score by responsibly using a credit card for essential expenses and to settle any outstanding balances in full in each month.
Important Note
If you’ve been diligently researching the pros and cons of an Individual Voluntary Arrangement (IVA), then you’re well on your way to making an informed financial decision.
To deepen your understanding and gain valuable insights, I highly recommend delving into our comprehensive article titled “IVA – Individual Voluntary Arrangement – Help & Advice.” This resource provides an in-depth exploration of IVAs, offering expert guidance and advice that can be invaluable in helping you navigate this financial solution effectively.
Whether you’re considering an IVAs or simply seeking to expand your knowledge, this article is your roadmap to a clearer understanding of this debt management option. Dive in and empower yourself with the information you need to make the best financial choices for your future.
Where Can I Get Free Debt Advice?
It’s better to take debt consultations from a professional debt advisor before making a life-altering decision based on the IVA Pros and Cons. These professionals can guide you through finding the best debt solution to match your particular debt issue.
For that, there are a number of debt charity organisations available in the UK where you can take debt advice and other debt-related services free of charge. Below is a list of charity debt organisations that you could use to get debt help.
Conclusion
We hope this guide has shed light on how an IVA works and its Pros and Cons. It does not matter whether you’re considering IVA, Bankruptcy or other Debt solution options. The decision to take help from a debt solution like lVA is a complex one involving many layers of consideration.
It’s crucial to conduct a comprehensive assessment of your financial situation to identify the benefits that genuinely apply to your circumstances if you get an IVA. Conversely, It’s better to be aware of drawbacks you might experience as well due to applying for an Individual Voluntary Arrangement regarding your particular debt issue.
Key Points
- Defining the IVA: An Individual Voluntary Arrangement (IVA) offers a structured method for debt repayment.
- If you have assets you wish to safeguard, Then IVA is the best, as you won’t meet the eligibility criteria for a Debt Relief Order (DRO).
- Pros of an IVA:
- Simplified Payments: One of the standout advantages of IVA is consolidating multiple debt payments into one fixed monthly amount.
- Protection of Assets: Unlike bankruptcy scenarios, an IVA usually allows the retention of major assets, including your home and car.
- Freezing of Interest: An IVA halts further interest and charges on outstanding debts, offering a stable ground to repay.
- Legal Protection: Those under an IVA are shielded against legal actions from creditors.
- Affordable Monthly Contributions: Calculated based on one’s income and expenditure, ensuring it’s sustainable.
- Cons of an IVA:
- Limited Expenditure: The agreed monthly payment might strain personal budgets, leading to lifestyle adjustments.
- Credit Rating: Despite potential recovery in the long run, an IVA initially impacts the credit score negatively.
- Public Listing: Those with an IVA get listed on the Individual Insolvency Register.
- Banking Restrictions: An active IVA might limit access to regular banking services.
- Pressure of Long-term Commitment: Typically lasting 5-6 years, breaking the terms can have serious consequences, including potential bankruptcy.
- IVA vs Bankruptcy: Deciding between an IVA and bankruptcy is contingent on individual situations. While IVAs offer more flexibility and asset protection, it demands strict adherence and financial discipline.
- Decision-making Factors: When evaluating “IVAs Pros and Cons,” personal circumstances like valuable asset possession play a crucial role. For those with significant assets, the advantages might outweigh the cons.
- Expert Consultation: It is always advisable to consult a debt management professional for tailored advice. They can guide you on whether an IVA aligns with your financial conditions and future goals.
FAQ
An IVA is set up by an Insolvency Practitioner. You make monthly payments based on what you can afford, and these are divided among your creditors. After the agreed period, typically 5-6 years, any remaining debt is written off.
Some key pros include simplified payments, asset protection, and freezing of interest and charges. Plus, it offers legal protection from creditors.
The cons can involve limited spending, an initial negative impact on your credit rating, being listed on the Individual Insolvency Register, and restrictions on banking.
Your credit score will take an initial hit when you enter into an IVA, while it is less damaging than bankruptcy in the long term, your credit score will take an initial hit when you enter into an IVA..
The better option depends on your personal circumstances. An Individual Voluntary Arrangement allows you to keep your assets and may be less damaging to your credit score, while bankruptcy is more severe but might resolve your debts quickly.
