Is An IVA The Right Option For Your Debt Problems?

Due to increasing consumer debt levels more and more people are taking out Individual Voluntary Arrangements (IVAs). That’s because high interest rates and other costs have put the strain on finances, leaving many unable to cope.

But how do you know when an IVA is right for you?

Here are a couple of points that might help you to make that decision.

  • If your debts are less than £15,000, then a debt consolidation loan might help you to become debt free.
  • If you think you can repay your debts in less than five years, then it might be better to undertake a debt management programme.
  • However, if you have debts of more than £20,000 and think that it might take more than five years to repay the debt, then it’s worth considering an IVA.

In some ways, an IVA is similar to a debt management process, in that you reach an agreement with creditors to repay your unsecured debts. However, it is a more formal process. To get started you must meet with an insolvency practitioner to discuss the amount you owe and who you owe it to.

The insolvency practitioner will also look at your assets and liabilities to work out how much money you have available to repay debt after looking after your basic household needs. Once this is done, the insolvency practitioner creates a proposal for debt repayment, which you must approve. In general, this means making one affordable monthly payment over five years.

Dealing With Creditors

The next step is to get your creditors to agree to the deal. The insolvency practitioner sends the proposal to your creditors and arranges a creditors’ meeting, where they can decide whether to accept, modify or reject the proposal.

As long as creditors who represent at least 75% of your debt accept the proposal, then the IVA becomes legally binding on all the creditors. All you have to do then is meet your payments, which you pay to the insolvency practitioner, who pays the creditors. If you don’t meet your payments, then you may end up having to file for bankruptcy.

If you do meet your payments, at the end of the five year period, the rest of your debt is written off, leaving you debt free. The IVA appeals to many people because it offers a finite period during which people can repay part of their debts. After that they no longer have a debt to worry about.