How can an IVA help?

People who are struggling with their debts may have access to different debt solutions that could help them. Deciding on which solution is right for them is something that will depend on their financial situation – some people will need to enter an IVA (Individual Voluntary Arrangement), while others would be better off with a debt management plan, and others will need to consider bankruptcy.

In this article, we’re looking at IVAs.

What kind of borrower can an IVA help?

An IVA is a debt solution that’s designed to help people who owe significant amounts of unsecured debt (in many cases, this means around £15,000 or more) to multiple creditors. It can be appropriate if they can’t keep up with their monthly payments, but can commit to making reduced payments (in most cases) every month for five years.

IVA help is only available to people who live in England, Wales or Northern Ireland – residents of Scotland may be eligible for a Trust Deed.

How does an IVA help them?

Assuming a borrower can reach an agreement with enough of their creditors, an IVA can bring their payments towards their unsecured debts down to a level that’s calculated to be affordable after they’ve accounted for their essential expenditure – things like mortgage or rent payments, utility bills and the cost of food, transport and clothing.

In other words, their monthly payments would be set at a level they should be able to afford without using money they need for life’s essential costs. Assuming they make those payments and meet any other requirements in the terms of the IVA (like releasing equity from their property, if they own their own home), their creditors will write off any outstanding unsecured debt at the end of the IVA – the portion they weren’t able to repay in that time.

And while the IVA is in progress, their unsecured creditors won’t be able to take any further action against them.

How does an IVA help creditors?

Why would creditors agree to write off any debt? Assuming the IVA works out as planned, it means they’ll be able to depend on receiving the rest of the money. It also means they should receive more than they would if the borrower ended up being declared bankrupt.

Plus, there’s always an IP (Insolvency Practitioner) involved in IVAs – a professional who’s responsible for ensuring the terms of the IVA are fair to the creditors as well as the borrower.

Can an IVA help me?

If you’re wondering “Can an IVA help me?”, you’ll need to talk to an expert. Tell them about your finances (what you owe, what you earn, what assets you own, etc.) and they’ll be able to tell you if they think an IVA is likely to be your best option – if it would help you, and if your creditors would be likely to agree to it.

Just be aware that the fact you’ve entered an IVA will appear on your credit report and will stay there for six years. Since most IVAs last five years, this could be an issue during the first year after your IVA has come to a conclusion, making it harder to obtain credit during that year.