If you wish to choose the alternative of IVA to redeem yourself from the financial problems you are facing, you need to know how to apply for an IVA. It can free you from the burden of debt in about five years.

Usually with the aide of a debt advisor, a debtor sends the proposal for application of an IVA depending on his current financial condition to a Licensed Insolvency Practitioner. Then a formal proposal is drafted by the IP taken into consideration the history of debt and explaining the current plight as well as the willingness to reach an agreement. This is then signed by the debtor and sent to the creditors who reply within a span of two weeks. The creditors may ask for amendments in the proposal which will be intimated to the debtor by the IP. Thereafter, a meeting is held between the creditors who either favor or reject the proposal. If a 75% vote count is in favor, the proposal is implemented. The court and the creditors are the only two parties to whom the proposal is disclosed.

It takes about 4-6 weeks to apply and finally settle an IVA program. During this period other formal considerations like filing facts, drafting proposals, collection of evidence and sending proposals to the creditors are done. Thus through a monthly payment, debtors can relieve themselves off their debts. This monthly payment is administered by the IP and presides over the meeting, if any, between the debtor and the creditor. Otherwise, during the five years the two parties are not permitted to see each other. All transactions are to be done through the IP only. If the debtor respects the monthly payments to be made he can relieve himself off in five years and the remaining payment is written off.

An IVA is a serious financial agreement, so be sure to check the credentials of your IP before getting involved!

The first thing you have to establish is exactly how much you owe. No matter how much you hate those bills you have to sit down, go through them and find out exactly how much more you have left before you finish paying off your debt. The best option would be creating an excel sheet where you add the outstanding balance, the interest rate and your monthly payment.

Once you have added all your debts now you need to decide which one to focus on to pay off first. Many advocate paying off the highest interest one off first while others feel that you should start with the smallest to highest. In either case you are going to use a system known as the debt snowball which means that once you have paid off one debt, the money going to that payment each month will be added to the next debt so you can pay that off quicker and so on and so forth.

To pay off that first debt faster you are going to have to make some changes which means drawing up a budget to see where all your money is going and if you can save anywhere. Depending on how quickly you want to pay off your debt you can cut out most things except for the essentials. No, chips and a pint every night are not essentials, we guarantee you will live without them for a while.

Every penny you save will go towards making extra payments on your first debt so you can pay it off as soon as possible. Once you have finished with the first one you will take the money you were paying on it every month and add it to the payments of the second debt until that one is finished and then move on to the next. This may seem a daunting task but you will find that paying off your debts and being well on your way to a stress free life can be quite an addicting feeling.

1. Before you buy that new gadget, shirt or new book step back and ask yourself if you really need it. Preferably give yourself 24 hours to think about it and if you still find you really want the item and it will be useful then make the purchase. But more often than not you will find that it was a thing of the moment spurred by great marketing campaigns and once you get home it will slip your mind completely.

2. Saving on food shopping does not have to mean eating stale bread with a side of water for the rest of your life but it does mean cutting down on all the food you buy, half of which you throw out anyway. Herein lies the problem, we buy so much food as if its going out of style and then we end up throwing it away because it has a funny smell. If you work out how much money you can save in a year by just not buying and throwing out so much food you may be shocked.

3. Make your own coffee at home. It really isn’t that hard and you are guaranteed that your cup of java is not going to cost you the equivalent of a small car in a year, unlike picking up your coffee from the local Starbucks every morning before you dash off to work. You can also try taking your lunch from home rather than ordering takeout or going to the pub and buy a second car instead.

4. Switch lights off in rooms after you are finished, turn off electrical equipment you aren’t using and don’t leave the water running for the sake of it. These small changes will cut your electric and water bills down significantly. Why should you pay for something that you aren’t even using?

5. Socializing is great and we all need to do it every now and again but that doesn’t mean eating out every night followed by drinks and, if you are in a generous mood, picking up the tab. You are just flushing money down the toilet and you will end up with a huge debt looming over your head and you won’t have anything to show for it. No one says you shouldn’t see your friends but have you ever considered cooking dinner and inviting them over to your place? It is not as difficult as it may sound and you will probably have more fun as well.

A few changes in your life can have you saving thousands every year which will help you pay off your debt or avoid it all together.

Once the forms are all signed an Interim Order will be issued by the court to freeze and impede any legal action from being taken against you by your creditors. A meeting will be organized with all your creditors which you will have to attend where your creditors vote whether or not to accept the IVA. Unlike a debt management plan, an IVA is a legally binding agreement and if the creditors who represent 75% of your debt vote for the IVA then the remaining 25% have to accept it as well as it is law.

Advantages of an IVA

The main advantage of an IVA is that you will be debt free within 5 years and up to 75% of your debt can be written off. Your home and other assets will also be protected and you will also suffer from no professional disqualification, unlike filing for bankruptcy. Of course, you will also be making much lower monthly payments but note that your wage slips are monitored and if you earn more then you will pay more.

Disadvantages

As with anything there is also a flip side. The main problem with an IVA is that you must have a minimum of 15,000 in debt to at least 3 creditors and you will also have to make a minimum payment of 200 per month. If you fail to make your payments stipulated in the IVA then you will automatically be made bankrupt and your IVA will show up on your credit report for 6 years. It is also important to remember that lying on you IVA application is a criminal offence.

The first criteria which will make your choice extremely easy is that you can apply for an Individual Voluntary Agreement only if you have a minimum of £15,000 in debt to at least 3 creditors while a Debt Management Plan limits you to a minimum £8,000 in debt to 2 creditors.

One of the most important differences between the two, especially if you qualify for both, is that with an IVA you will be debt free in five years, regardless of how much you have paid off, whereas with a debt management plan you can end up paying it off for the rest of your life if the monthly repayments are small. Also, the fact that an IVA is a legally binding agreement means that your creditors cannot back out of it any time they feel like it, while a debt management plan carries little judicial weight. However, this legal character of an IVA means that if you cannot keep up with payments then you will most likely end up being made bankrupt. There is a very fine line between the good and the bad in this case.

On the other hand with an IVA you will be making monthly payments that can vary according to your earnings, in other words the more you earn the more you will be paying, whereas with a debt management plan you pay only the amount you want and feel can afford which is then fixed for the duration. One big problem with a debt management plan is that most of the companies who help you organise it require that you have an income and own your home which will be used as surety against your debts, while an IVA will protect large assets such as your residence.

Depending on your situation both plans can be a good choice. However, if you are in deep debt then maybe an IVA is your best option so that you can see the light at the end of the five year tunnel.

An IVA can be a viable way to get yourself out of debt.

IVA actually stands for individual voluntary arrangement, which is a formal agreement between you and your creditors to pay back money that is owed to them, when you are currently unable to adhere to the existing payment terms. Generally an IVA can last around 5 years, with lower monthly payments usually offerd to ensure the repayments are met on time. Because of the formal nature of an IVA, the agreement must be set up by a certified insolvency practioner.

How does the IVA (individual voluntary arrangement) process work?

When an IVA is arranged, you will be asked about your current outstanding debt and other questions relating to your lifestyle, including your employment status, salary and other factors which may help formulate a payment plan to suit you. The idea here is for your IP (insolvency practitioner) to calculate the best possible payment plan to suit your current lifestyle, so that you can comfortable keep on paying your debt repayments.

The IP will then make an application to the court for an interim order, which will prevent any creditors taking legal action out on you in relation to the outstanding debt owed to them. A meeting will usually then be arranged, to discuss the terms of your IVA.If everything goes well, you will be given a reduced payment plan to ensure that your creditors get some of their money back, rather than costly court proceeding to reclaim the whole amount! NB: It is important to not confuse the IVA with a debt management plan, which is not legally binding!

Although an IVA is a very serious procedure (please note: that the process will be noted on your credit rating for up to 6 years!!), it can be a way to help you restructure how you pay your debt.

This website will continue to tell you more about debt managament, IVA’s and other debt relating issues. Please check back regularly for more finance articles!

And welcome to IVA tips.co.uk, a free resource to help you with your debt management and financial worries. On this blog you will find tips, advice and articles relating to debt management, IVA and money saving. Our ultimate goal is to support and help those in financial trouble out of debt. Many thanks for dropping by!

The IVATips Team.