We will try to highlight the advantages and disadvantages of IVAs here.
An IVA is a legal agreement between you and your creditors. So long as you meet IVA criteria it allows you to repay what you can afford each month, usually over a five year period.
At the end of the IVA term, assuming you have completed the arrangement as agreed, the remainder of your unsecured debt within the IVA will be legally written off and you will be free of debt. Monthly contributions to the IVA will be based what you can afford after other essential costs such as mortgage, utility bills and food etc. have been taken into consideration.
There are of course advantages and disadvantages to IVAs which makes seeking advice on an appropriate debt solution worthwhile.
One particular advantage is affordable, reduced repayments. Payments are fixed at the start of the arrangement to give peace of mind that you can afford to continue with the proposal for the agreed term, usually five years. Indeed the fixed term is also attractive as individuals can see an end to their debt problems. This is in comparison to less regulated debt management plans which, in many cases, have no fixed term or end date. Entering into an IVA takes away creditors rights to take legal action to enforce repayment of the debt so long as payments are upheld throughout the term of the proposal. It also stops penalties such as interest charges being applied.
However, as with most things there are also a number of disadvantages to an IVA and these must be highlighted to individuals so they are entering into an agreement armed with all required knowledge. An IVA is a particularly good debt solution for some but may well not be for others.
IVAs deal with unsecured debts such as loans and credit cards but not secured debts such as mortgages. Mortgages and other secured debts must be funded outside of the arrangement and usual stipulations still apply to the mortgage where failure to make regular payments on time can lead to your home being repossessed. However, if you are struggling or indeed missing payments at this stage, an IVA can allow funds to be concentrated on these essential commitments.
One of the main restrictions when entering an IVA will be the ability to borrow more whilst the IVA is in progress.
Further debt is not allowed without the permission of the Supervisor (Insolvency Practitioner) of your IVA. Additionally, a property you own may need to be revalued towards the end of the IVA with any realisable equity possibly having to be brought into the arrangement. In many cases however, this equity may not be realisable if the amount of equity is relatively small or costs are prohibitive. It is possible where equity cannot be realised, that the term of the IVA is extended a further 12 months.
An IVA is a method of insolvency, and will impact on your credit rating. However, the fact you are considering an IVA in the first place means it is highly likely that your credit rating is already in need of repair. A record of your IVA will remain on your credit history for six years after it begins. This means that you will have a clean credit history a year after your IVA has finished (assuming it`s a five year IVA).
For professional, debt solutions advice, contact us today we offer personal services to suit the needs of each of our clients. As well as detailed IVA advice, we also offer general free advice on debt.