Is an IVA worth it?

Only you can really make the decision about whether an Individual Voluntary Arrangement is the debt solution for you, but we are here to help you explore the options available to you. If your financial situation is making life difficult and you feel there’s nowhere left to turn, we can help you to regain control of your finances in an affordable way.

With unsecured debts totalling more than £5000 it may seem as though every week brings more and more letters, emails and telephone calls demanding payments that you simply cannot afford. With interest added monthly, the amount you owe seems to grow larger by the day. It’s a stressful and unpleasant position to be in but there is help available and your life and finances can be in your own hands once again. We at IVA Advice are here to help you explore the possibilities and to which of the available options is worth it for you.

Short term ‘consolidation loans’ carry a dangerously high repayment interest rate which could end up making your situation much worse. A bankruptcy order takes less time but brings with it a long-lasting footprint which will affect your credit rating and your ability to regain financial stability.

An IVA resides somewhere in between these two and has its own set of benefits and considerations. A free, no-obligation consultation with one of our advisors will help you to work out if it’s the answer you are looking for.

While there are many benefits to taking out an IVA, there are also some potential disadvantages which should be acknowledged.

Check out the advantages and disadvantages

Advantages

  • You will make one fixed, affordable monthly payment for a specific period of time (5 or 6 years)
  • An Insolvency Practitioner (IP) will support you throughout the duration of your IVA payment period.
  • Your creditors will not be allowed to contact you to demand payment once your IVA is in place – your IP will liaise with them on your behalf
  • All interest and late payment charges will be stopped meaning that your debt will no longer be increasing each month
  • You cannot be forced to sell your home to pay off your debt*
  • Your monthly payments will be flexible if your circumstances change An IVA is preferable to bankruptcy in the eyes of employers

    *you may be required to release some equity through remortgaging towards the end of your payment period

Disadvantages

  • All your savings and some assets will need to be used to pay off what you can
  • Credit cards, store cards and applications for credit greater than £500 will not be accepted during the IVA period
  • Self-employed people or those with no fixed monthly income might not be granted an IVA
  • You will be liable for professional fees  for the appointment of your IP
  • Not all types of debt can be included in an IVA
  • Your credit rating will temporarily reflect your IVA and your name will be added to an online insolvency register for the payment period
  • Some employers will not appoint staff with an IVA in place

If you find yourself identifying with more aspects on one side of the table than the other, that should help you to decide. We dig deeper into the IVA pros and cons in our other blog post.

It is also worth keeping in mind how the longer-term effects of different insolvency solutions can impact on your life. An IVA is not the fastest solution but many people find that the benefits far outweigh the problems. Whereas filing for a bankruptcy order, for example,  would take less time, the affect it will have on your credit score in the future is more damaging.As with any other important decision it is vital that all applicants thoroughly explore and research the options available to them. If you are able to arrange a payment schedule that works for you and stick to it for the duration of your IVA, this may be the right path.

If you decide that this is the best option for you, you will need to appoint an industry regulated IP to apply for your IVA. Your IP is then responsible for reviewing your situation including how much money you owe and who you owe it to. They will work out how much you can reasonably afford to repay each month and will make contact with your creditors. Your IP becomes the ‘go-between’ so that you no longer need to have direct contact with any of the people you owe money to. This alone removes much of the stress of being in debt.

Your IP must be notified of any change in circumstances (such as any extra income or ‘windfall’ payments, job changes or health issues which may affect your ability work) during the IVA period so that they can communicate with the creditors. Otherwise, if monthly payments are consistently adhered to, you will be debt-free at the end of the payment period. You will then be removed from the insolvency register and your credit rating will be restored.

10 Questions to reflect on

Does your current unsecured debt total £5000 or more?

While IVAs are suitable for larger sums of money owed, there may be a better solution to manage repayments for debts of £5000 or less.

Do you owe money to 2 or more creditors (e.g. credit cards; store cards; council tax arrears, catalogues; unsecured loans etc)?

Not all types of debt can be included in an IVA but if you owe money to at least 2 different creditors this may be the best way to solve your situation.

Are you in regular employment or have regular monthly income?

You will need to be able to agree and commit to a payment schedule, negotiated with your creditors by the IP. If you are self-employed or have irregular monthly income this will make the conditions more difficult to negotiate.

Have you tried to solve your own financial problems but made little or no progress?

All too often when debt begins to build up, people find themselves able to make only the smallest monthly repayments – perhaps barely covering the interest on the original loan. With an IVA, creditors can no longer add interest or apply penalties for late payments, so the amount owed will decrease rather than keep growing.

Do you need to find an insolvency solution that will write off most or all of your debt so that you can regain control of your own life?

Typically an IVA will repay 20% – 80% of the original debt. Once the IVA has finished, however, your credit score and financial situation will be restored.

Can you make a payment every month of at least £70?

While there is no set minimum monthly payment for an IVA, low payments will only lead to an extended payment period. The more you can realistically pay each month, the quicker the process will be.

Can you ensure consistency in your payments and stick to the repayment schedule?

It may be hard going while you live through the IVA period and you will need to stick to your monthly budget and agreed payments. Your IP must be notified of anything which interferes with your ability to keep up the payments.

Are the associated worries and anxieties of being in debt affecting your quality of life?

If the monthly letters and phone calls and the constant worry of being in debt are all weighing down on you too hard, and IVA may take away this pressure and allow you to focus on other aspects of your life such as family and friends.

Do you have the discipline needed to make sure all ‘available’ money goes towards paying off your debts for the duration of your payment schedule (usually 5 years)?

If by the end of the payment period you have not been able to pay the agreed amount, your IP will work with you and your creditors to find a mutual settlement.

Do you have a reasonably secure lifestyle with minimal possibility of a sudden change in circumstances?

There are often unforeseen circumstances that arise in life, but if you are generally secure in your lifestyle and your choices you will find yourself more able to commit to the payment schedule. if anything does happen during your payment period you must inform the IP so that adjustments can be made.

Ethan Combes
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