What is an Individual Voluntary Arrangement?
An Individual Voluntary is a formal agreement you enter into with your creditors whereby you agree upon a lower monthly payment and, usually, within 5 years your debt is considered settled, regardless of how much you have paid off. Due to its formal nature it must be drawn up by a licensed professional therefore be prepared to pay an upfront fee for the privilege. Your financial situation will be evaluated and a repayment plan will be drawn up which you will have to sign.
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.
What is an IVA?
One of the first topics we should cover is exactly what an IVA is, as a lot of confusion surrounds finance related terms.This article is aimed to describe exactly what an IVA is and how it can be used to help reduce your debt.
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!