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IVA Pros and Cons

IVA’s have many benefits, but they also come with some disadvantages. It makes sense to weigh up all the pros and cons of an iva before you decide to see if you are eligible. The following is a list of the common iva pros and cons to think about prior to applying for financial advice for your situation.

IVA Pros (IVA Advantages)

  1. You will become completely debt free
    Your iva will run for 5 years (60 months). When the 5 years are complete, you will be completely debt free. Your creditors will not be allowed to chase you for any debts within the iva or after the arrangement.
  2. Get your debt written off
    Even though you may not have paid off all of your debt, once you have made 60 monthly payments you know the rest of your debt will be completely written off. You won’t have to go on paying your debts month on month without an end in sight like many other debt payment plans.
  3. Your creditors will not be allowed to contact you
    When you sign up to your arrangement, your creditors are not legally allowed to contact you by any means to discuss your debt. Our advisors will provide you with a document that you can forward on to them if they require. This will stop all home visits, letters, phone calls and threatening text messages from debt collectors or bailiffs.
  4. One low payment
    Rather than having multiple direct debit payments going to lots of different companies which you are struggling to afford, an IVA (see what is an iva) will be structured as one affordable low monthly payment to an Insolvency Practitioner (IP). The IP will then distribute this monthly payment between your creditors, payments typically start at £80 per month.
  5. Protect your house
    Compared to its alternatives. An iva is a great option for those who are looking to protect their home and its contents. If you are in an arrangement, you will not be asked to sell your home or any of its contents. They will remain protected. Although if you have a lot of equity in your house, you may be asked to remortgage it to release money towards the end of your plan.
  6. Keep your car
    If you need to keep your car for work, as long as it is deemed as reasonable then that won’t usually cause a problem. Your assets will not be liquidated and used to pay creditors, the only payment they would be looking to receive is the agreed lower monthly payment which would be based on what you can afford. If you do not need your car for work (or if you don’t work), you may still be able to keep your car whilst you are in an iva. This will depend on what car you have and how it is financed.
  7. No stigma
    Even now, when people talk about bankruptcy there is a certain stigma attached to it. In reality, they are both similar solutions. People’s perceptions of an iva is a lighter touch, which is largely true. An iva will not be publicly announced in the London Gazette and they are very common now so they do not come with the same stigma as a bankruptcy. You don’t need to tell your employers or your friends/family about it, unless you want to.
  8. Keep your pension
    If you have a private pension, unless you have made significant overpayments in to your pension it would be largely protected. Generally speaking, your pension will be left alone and you can still build on the pot which you have created in the future.
  9. All of your interest will stop
    When your creditors have agreed to an iva, the interest on your debts will stop completely. This will help your total debt amount from rising and stabilise your position. You can then start paying in affordable monthly amounts to decrease your overall debt level.
  10. No more charges
    Been hammered with charges on your credit accounts? This will be a thing of the past. No more charges for late payments, no more charges for going overdrawn or spending too much in a particular month. Similar to the interest on your credit accounts, this will be frozen.
  11. You can take payment holidays
    If something happens in your life unexpectedly and you cannot keep up with your payments, your IP can arrange at their discretion for you to take a payment break for a few months. The months you have missed can be added on to the end of the iva.
  12. Generous allowances
    Being in debt comes with sacrifices. You may be not paying your phone bill so you can catch up on a credit card bill. You could be neglecting your children’s pocket money so you can pay for your gas and electricity. This can stop. Your advisor will work out allowances for your food, entertainment, utilities, childcare and all other factors. This will allow you to keep to a budget where you know the essentials will be paid.
  13. Quick and easy
    An iva can be set up with minimal fuss. It is a formal arrangement and nationally recognised. If you arrange a call with an advisor today, you could be in a much stronger position on the same day. Unlike other debt solutions which are not formal, an iva is the official way to write off your unaffordable debts.
  14. No setup costs
    Unlike bankruptcy or debt management, an iva will come with no upfront costs at all. Your only commitment is to pay the low monthly payment (which you approve).
  15. Your career in safe hands
    Most places are not too concerned if you are in an iva or if you have been in an arrangement in the past. In a lot of cases, your employer would not ask you about insolvency. This can be different if you work in a sector such as banking, insurance or law so we would recommend to always check with your employer before entering into any arrangement.
  16. A fresh start!
    At the end of your iva you will be given the opportunity of a fresh start. How good would it feel to have no monthly debt payments coming out of your bank? How good would it feel to know that you can have a second chance of managing your own finances and rebuilding your credit rating.

IVA Cons (IVA Disadvantages)

  1. Your perfect credit rating will be affected
    An iva is displayed on your credit file for 12 months after it ends. So if your arrangement is for 5 years, expect your iva to disappear completely after 6 years. To most people this isn’t a problem as debt caused the problem in the first place so they are not looking to start this problem again.
  2. Not everybody is eligible
    To qualify for an arrangement you may need to fit into what you feel is quite a strict criteria. Generally speaking you will qualify if you have over £5000 of unsecured debt. This includes credit cards, loans, overdrafts, payday loans, council tax arrears and other similar debts. You will have to owe this debt to 2 or more creditors or have 2 or more lines of credit (such as a credit card and an overdraft). To check if your debts are eligible, get in touch.
  3. You will be asked to make a monthly payment
    Unlike most bankruptcies, you will be asked to pay a monthly amount (starting from £80) every month. You will need to maintain this payment when you enter into an iva and not miss one of your scheduled payments, as this could cause the iva to fail. The monthly payment you will be asked to make will be set by your income and expenditure and agreed by yourself, so you know that it will be affordable to yourself not only now but in the future.
  4. You may have to release equity in your house
    If you have a lot of value in your home, your insolvency practitioner may ask you to remortgage your property in order to release cash. This only applies to homes which are purchased either outright or through a mortgage and is only an option if your credit rating allows it.