An individual voluntary arrangement is a written and legally enforceable agreement between you and your creditors to repay your debts over a set period of time (IVA).
An IVA can be customized to meet your individual needs, but it can be pricey, and there are risks to be aware of.
Benefits of an IVA
Some of the benefits of an IVA are as follows:
It’s legally binding, so your creditors are bound by it and won’t be able to pursue you for the debt once the IVA online is in place.
It’s only for a certain amount of time, and you only have to pay it while it’s in effect – usually 5 or 6 years. Creditors are usually okay with you merely paying a fraction of the debt.
Examine whether an IVA is a good fit for you.
An IVA may be ideal for you if you match the following criteria:
- You owe more than £10,000 in debt — You may be able to acquire an IVA if you owe less, but the fees are high, so there may be alternative options if your debt is smaller.
- You owe money to at least two distinct people (people to whom you owe money).
- If you don’t want to deal with your creditors directly.
- When you have enough money to make monthly IVA payments – if you need assistance, contact Citizens Advice or the Money Advice Service.
You might be able to get an IVA even if you don’t meet all of these conditions because IVAs are flexible. For additional information, contact your local Citizens Advice or an insolvency practitioner. GOV.UK You can hunt for a licensed insolvency practitioner in the United Kingdom.
When an IVA isn’t the best choice for you
IVAs require you to pay a set amount to your creditors every month for a set period of years – usually 5 or 6. An IVA may not be ideal for you if you don’t have a consistent income or if you are having another source of passive income or a permanent job because you’ll have to pay as much as you can afford each month.
An IVA may not be the best solution for you if any of the following apply to you:
- If you work in accounting, law, or financial services, check your contract to see if you can keep your employment if you get an IVA.
- If your debt is less than £10,000.
- You don’t have any spare cash or a lump sum payment to make to your creditors.
- If you get mortgage interest assistance (SMI), your payments may stop, and you may be asked to refund any SMI you’ve received since April 6, 2018.
If you owe money to European Union individuals or corporations.
- An IVA may not be the ideal solution for you if you owe money to people or companies in the EU. These expenditures may not be covered by an IVA.
- Your creditors may continue to contact you for money, for example, by calling or writing to you.
- If you live in the EU, they may take you to court.
- EU creditors must sue in the UK rather than in the EU, even if they already have a judgment. Before December 31, 2020, the United Kingdom will recognize EU decisions that were entered or begun prior to that date.
Obtaining an IVA: The Costs and Risks
Find out how much an IVA will cost you and what impact it will have on you:
- possessions, savings, and plans for retirement
- credit rating
IVAs are expensive because they must be set up by a qualified insolvency practitioner. The fees are calculated based on the magnitude of your debt which can easily be done through the Debt management company and the amount you repay. On average, an IVA costs between £4,000 and £5,000 to complete. In most cases, the charges are paid in installments as part of your IVA payments.
If you own a property, you may need to refinance it as the Individual voluntary agreement comes to an end. Only if your home has equity can you remortgage it.
Equity is the amount of profit you’d make on your property if you sold it and paid off your mortgage.
In the event that you are unable to refinance your house. You’ll probably have to pay your IVA for another 12 months.
Assets, possessions, and a retirement plan
If you own a car or other costly items, you may be forced to sell them to cover the IVA.
Almost sure, you’ll have to pay your creditors out of any remaining funds.
When your IVA is in place, a ‘windfall’ occurs when you receive money that you weren’t expecting, such as if you inherit money. You usually get to keep the first £500, but you’ll have to pay the rest into your IVA.
This money can be considered income if you get payments from your personal pension. It’s also possible that you’ll have to use it to pay your creditors.
If you are 55 years old or will be 55 years old while your IVA is in force. A lump-sum payment is a one-time payment made from your pension.
Receiving an IVA will affect your credit score, making it more difficult to acquire credit in the future.
Examine your options.
- Check to see if there are any other debt-reduction solutions available. It’s possible that you’ll be able to do the following:
- You can file for bankruptcy if you have no assets, such as property, or if your home is worth less than the loans secured on it (known as “negative equity”).
- If you don’t own a property, have debts of less than £30,000, and have limited assets and income, you can apply for a debt relief order.
- If you have enough money each month to pay your creditors, create a debt management plan with the help of debt management businesses.