Being in debt is an awful experience, and unfortunately, it’s a more common issue than you might believe. If the amount you owe keeps increasing and it feels like there’s no way out, you should know that plenty of debt relief solutions are available – including an IVA.
An Individual Voluntary Arrangement (IVA) is a debt management plan that helps people pay their debts over an agreed period. It’s a legally binding agreement between you and your creditors, but an insolvency practitioner handles brokering the initial proposal and ensures you keep up with your payments.
IVA’s are so popular because they allow you to freeze your interest and repay your debts without being hassled by creditors, but you should consider some essential factors.
In this post, we’ll look at when an IVA is the most suitable option for your needs and reveal when you should consider entering into an Individual Voluntary Arrangement instead of using other debt solutions.
Who Is Eligible For an Individual Voluntary Arrangement (IVA)?
Not everyone is eligible for an IVA, and your personal circumstances will define whether you’re successful in your application.
That said, the basic criteria you must meet to be eligible include:
Debts of £6000 or More
As IVA’s are a long-term agreement, it’s not worth entering into one if you don’t have high debt levels. While there is some flexibility with this rule, most reputable insolvency practitioners will suggest an alternative debt relief solution.
Your Debt is With at Least Two Creditors
If your debt is only with one creditor, you won’t be eligible for an IVA but can apply for a debt relief order.
You Don’t Live in Scotland
England, Wales and Northern Ireland issue IVA’s, but Scotland does not. Instead, the country offers something known as a Trust Deed, similar to an Individual Voluntary Arrangement.
You Have a Regular Income to Afford the Monthly Payments
To pay back your outstanding debt, you need to prove that you have a reliable source of income. This could be made up of regular working income, or benefits. It doesn’t need to be from employment, and many insolvency practitioners will consider people receiving benefits, pensioners, and a lump sum contribution.
Your Creditors Agree
All of your creditors have to agree to the IVA, and in some rare cases, they don’t. However, if you owe money to people, they usually want it back, and an Individual Voluntary Arrangement is the best way to recover that debt.
When Is An IVA Most Appropriate?
You might have heard horror stories about how people are pursued relentlessly by their creditors, and in most cases, it’s true. You have to remember that you borrowed money from these people, and they want it back, which can cause issues between both parties.
However, it doesn’t have to be this way. If you’re struggling with debt and it feels like there is no other solution in sight, an IVA will allow you to repay your creditors over a more extended period.
As an IVA is a legally binding agreement, you need to consider whether it’s the right option for you.
Do You Have a Regular Income?
If you can’t afford to pay at least £80 a month towards your IVA, you won’t be able to enter into an arrangement. In these cases, bankruptcy might be your only option because you’re unable to pay back the amount you owe.
A regular income can be from employment, benefits, or payments from a family member, but you should think about your financial stability before asking for an IVA.
Are You In Severe Debt?
We’ve seen this scenario many times before; people think they’re in debt, but it’s just a money management problem. For example, if your monthly income covers your living expenses and repayment obligations, but you’re spending a lot of money on eating out and leisure, you don’t have a debt problem.
Individual Voluntary Arrangements are only suitable if a person’s monthly income doesn’t cover their living expenses and debt repayments.
Are You Ready to Commit to an IVA?
It’s essential to consider whether you’re ready for an individual voluntary arrangement. The IVA is a legal contract between you and your creditors that typically lasts six years.
During this time, you’ll appear on the Individual Insolvency Register and have to make monthly repayments towards your debts, which will be divided among your creditors depending on the individual arrangement. If you miss any of these payments, it can lead to legal consequences.
Before applying for an individual voluntary arrangement, it’s best to choose another debt relief solution if:
You don’t have a stable monthly income.
You can’t guarantee that you’ll be able to make the monthly payments.
You’ve entered into an IVA before and couldn’t keep up with the repayments.
Are You Aware That You’ll Have to Declare an IVA?
An individual voluntary arrangement is a legal, financial contract you’ll need to declare on future credit applications. For example, if you apply to rent a house or open a bank account, your application will likely be declined without mentioning an individual voluntary agreement.
It will appear on your credit file, so anyone asking for information will see the IVA on the credit report, but once you pay the amount you owe back, everything will be wiped clean. Then, you’ll have the opportunity to rebuild your credit rating.
You’ll also need to ask your insolvency practitioner for permission if you want to buy certain items, but it’s a great solution if you want to avoid filing your bankruptcy.
In some cases, your employment opportunities might be affected, but this only applies to specific jobs, including:
If you already work in these industries, you’ll need to discuss the situation with your employer.
When to Apply For an IVA
There’s no point letting your debts mount up until it gets to a point where you feel there’s no way out. As long as you have obligations towards at least two separate creditors and you owe at least £6000, you can take action and contact an insolvency service.
Remember that one of the key terms of an Individual Voluntary Arrangement is you must be able to pay back a reasonable amount of outstanding debt each month, so it’s best to take action while you’re still able to.
Contact an Insolvency Practitioner For Free Debt Advice Today
If you feel overwhelmed by debt and think an individual voluntary agreement could work for you, contact us today for more information on how we can help.
Our team of financial experts and insolvency practitioners are experts in debt advice. They can broker an effective debt solution that keeps your creditors at bay and gives you peace of mind that the future will be better.
Enquire about an IVA proposal today.