When people have a significant amount of debt, it may be that they are offered the possibility of taking out an IVA (Individual Voluntary Arrangement) as an alternative to bankruptcy.
If you’re wondering what is an IVA, then it’s a way or dealing with debts over £15,000 that are owed to three or more different creditors. It’s a contract between you and your creditors for scheduled repayments that is legally backed without having the high costs attached to bankruptcy.
It is governed by the court and both you and your creditors will be legally bound to stick to the terms set down in the IVA.
It’s a good option for those who are heavily in debt but do not want to declare bankruptcy. Unlike bankruptcy your details won’t be published in the local newspaper, your status is not affected and your assets – like property – will not need to be sold.
Creditors usually prefer an IVA over bankruptcy as it is less costly and time consuming. Most creditors will accept a lower amount that you actually owe, as it’s preferable to potentially not recovering any of their money if you don’t go down an official route like this.
On the downside, IVAs run for a maximum period of five years, so it’s longer than bankruptcy – one year. An IVA will also be recorded on the ‘Individual Insolvency Register’ which is open to public access.
The insolvency practitioner may also request that you release some of the equity in your property as part of the IVA deal and your salary will be monitored. If your earnings go up, then you will be likely to have to pay more into the IVA.
The minimum you can usually pay into an IVA is £200 per month and it will usually prevent you from getting further unsecured borrowing. The IVA remains on your credit report for six years and if you default on the IVA, the most likely next step is being made bankrupt.
IVAs don’t suit everyone; check whether it’s relevant for you by getting independent financial advice before signing up to any agreement.