How IVA’s work

Before applying for an IVA, Individual Volunteer Arrangement, you need to be aware that they are only beneficial for beneficial if your total monetary debt equates to more than £15,000, if this is not the case then an alternative form of debt management shall be more appropriate.

However, if you are in a situation where your debt totals to over £15,000 then the first step towards procuring an IVA is to approach a debt advisor. The debt advisor will talk you through all aspects of the IVA and consider your current financial position. You will need to provide a budget sheet detailing your income and all monthly expenses as this will then help you to agree upon a fixed monthly rate, which you will have to pay every month for the duration of the IVA.

Once this has been decided, a Statement of Affairs document shall be drafted including details regarding your monthly payment plan, amounts owed to creditors and the contract between you and your debt advisor. The Statement of Affairs must then be passed on to an Insolvency Practitioner, who shall present it to your creditors.

Your creditors shall be individually asked to vote ‘for’ or ‘against’ the IVA. Whether or not the IVA is granted will be dependent upon the results.

Why an IVA is a great solution

Paying off your debts through an IVA is an ideal solution as it enables you to pay one fixed low monthly instalment and also repairs all the damage done to your credit rating. Also, if you still have debts left over, after the full period of the IVA is over, they are declared void and will no longer show on your credit history. Therefore, once the IVA has come to an end your will be left in a very good financial position.

Additionally, once your IVA is granted, it includes all your creditors even those who did not vote. This means that you will no longer receive any troublesome phones calls demanding money from you or increasing the tax and interest on the money you already owe.

Conditions of an IVA

One condition of putting into place an IVA is that you cannot apply for any additional credit throughout its duration. This is set in place to enable your current debt to be paid off.

In addition to this, the monthly instalments are set at a minimum of £200. Some individuals struggle with this rate and are required to take equity out on their homes in order to stay committed to the payment plan.  Therefore, some individuals believe that it is a risk entering into an IVA if you are going to find it difficult to meet the monthly payments, especially if you are taking equity out on your house as it could result in you losing the property.

In conclusion, before settling on any debt management plan ensure that you research the agreement fully. Ask your debt advisor as many questions as you can think of so you completely understand what you are committing to and for how long.