Stop all creditor contact now and write off your debt with an IVA, from £70 per month
Are you trying to figure out the best debt solution for your circumstances?
Entering an Individual Voluntary Arrangement (IVA) is an effective way to take control of your debts, but it’s not a decision to make lightly. After all, it’s a legally binding agreement you’ll be committing to.
While an IVA can help you write off your debt, it does affect your credit rating. And although your creditors will no longer contact you, you do still need to commit to regular payments.
So how can you decide what’s best?
In this post, we take a thorough look into all the positives and negatives of an IVA and give you some insight into what an IVA can (and can’t) do for you.
Here’s everything you need to know…
Get Your Debt Written Off
Before entering an IVA many people feel like they’re drowning in debt, and find it hard to visualise a future where things are different.
But an IVA can help you become debt-free.
Typically, the fixed period for an IVA is 5 years (60 months). Once this period is complete, your remaining debt will be written off and you’ll become completely debt-free.
The % of your debt that is written off will depend on the monthly payments you agreed to initially, but it’s likely to be a significant amount.
Your Creditors Won’t Contact You
Are you being visited by debt collectors or bailiffs?
This is stressful for anybody. The good news is that as soon as you formalise your IVA (and sometimes sooner), your creditors will no longer be allowed (by law) to contact you.
That means no more:
- text messages
- home visits
In the case that any of your creditors do get in contact (unlikely), our advisors will provide you with a document that you can forward on to the creditor, to stop it happening again. If they continue, legal action can be explored, but this is rarely necessary.
Only Make One Low Payment
If you’re currently paying multiple creditors through direct debits and finding it difficult to keep track of everything you owe, an IVA can really help.
With an IVA your debts will be consolidated so that you only need to make one affordable monthly payment, paid to your assigned Insolvency Practitioner (IP). Plus, your IP is someone you’ll already have a relationship with, as you work with them during the initial set-up of your IVA.
Your IP will then be responsible for distributing this payment between all of your different creditors – no matter how many you currently owe.
The exact amount repayable will be based on your individual circumstances but can start from as low as £70 per month.
Protect Your Home
For most people, the security of their property is more important than anything else.
In these cases, an IVA is ideal. If you enter an IVA, your property will be protected, meaning you’ll not be asked to sell your home or any of its contents.
However, if you have a lot of equity in your house, you could be asked to remortgage it, to release money towards the end of your plan.
Keep Your Car
Is your car necessary for your essential living? Does it directly help you to deal with your debts?
If so, you should be able to keep it when you enter an IVA. As long as it’s deemed reasonable (for example you need your car for work), then it won’t be liquidated.
But even if you don’t need your car for work you may still be able to keep it. This will depend on the car you have and how it’s currently being financed.
The word ‘bankruptcy’ comes with negative connotations. But an IVA has none of the same associated stigmas. In fact, despite their increasing popularity, many people still don’t even know what an IVA is.
Plus, when you enter into an IVA, it won’t be publicly announced like bankruptcy is. All of your dealings with your IP will be kept private, and it’s entirely your decision whether to tell your family and friends.
Note: You will be added to the gov.uk insolvency register, which is searchable, but not publicly advertised.
Keep Your Pension
Your private pension will be largely protected in an IVA. And once you’re debt-free, you’ll still be able to continue building it. The only real exception to this is if you’ve made significant overpayments, which may not be protected.
Stop Further Interest
Once you enter an IVA, all debt-interest will stop. Completely. You’ll pay nothing except the affordable monthly payment that you agreed to.
This means that every payment you make helps reduce your overall debt level – rather than just trying to keep you afloat – which is often the case when you have debts with high-interest rates.
No More Charges
Excessive and frequent charges are one of the most frustrating aspects of trying to work your way out of debt. Thankfully, when you take on an IVA, this trouble becomes a thing of the past.
That means no more late payment, overdrawn, or overspending charges. Interest and charges will be frozen, allowing you the breathing space to truly reduce your level of debt.
You Can Take Payment Holidays
Generally speaking, you must maintain your agreed payments. But if something unexpected happens in your life, your IP may agree for you to take a temporary payment break. In this case, the months you missed will simply be added onto the end of the IVA, extending the overall term.
Easy To Get Started
An IVA can be set up with minimal fuss, allowing you to address your debts sooner rather than later. You can submit your documents digitally and meet with your IP online through video-conferencing, which is much quicker than traditional methods.
No Setup Costs
You may assume debt advice and help is expensive, but with an IVA there are zero upfront costs. This is significantly different from other debt management solutions like bankruptcy. With an IVA, your only commitment is the low monthly payment.
No Career Impact
Usually, your employer won’t be concerned if you’re currently in an IVA, or have been previously. In most cases, employers will not even ask about insolvency and it’ll have no impact on your career.
There are a few industry exceptions, such as banking, insurance, and law – so it’s worthwhile to check. But for most people, entering an IVA has no negative career consequence.
Being in debt comes with sacrifices.
One month you may have to skip paying your phone bill to make a credit card payment. The next, you’re left unable to pay your child’s pocket money so you can keep the electricity on.
With an IVA, you can stop this cycle. Your advisor will help you work out allowances for your food, entertainment, utilities, childcare, and all other factors such as who you owe money to and mortgage and rent arrears. Allowing you to create a budget that is considerate of all your essential costs.
Provides a Fresh Start
Debt is a significant life stressor and can be mentally exhausting. With an IVA your repayments are greatly simplified, and by the end of the term, you’re set-up for a fresh start! An IVA can give you a second chance to manage your own finances and rebuild your credit rating.
Even if the prospect of this feels unrealistic right now, it’s a reality for many who have already entered and individual voluntary arrangement.
IVA Cons (IVA Disadvantages)
Impacts Your Credit Rating
An IVA is displayed on your credit file for 12 months after it ends. As typical IVAs are fixed for 5 years, you can expect it to have disappeared 6 years after the IVA is formalised.
Still, for most people, this isn’t a problem. After regaining financial control most people are not looking for further credit facilities, that could potentially risk repeating the problem.
Need to Meet Eligibility Criteria
An IVA will not work for everyone, and there are some criteria you need to meet to qualify. Typically you need more than £5000 of unsecured debt, to 2 or more creditors, and also have a regular source of income. For a full breakdown of all the criteria you need to meet, check out our post here.
Asked to Make A Monthly Payment
You’ll have to make a regular fixed payment amount. Missing one of these payments could result in IVA failure, and leave you in a worse position. However, the payment is carefully calculated based on your income and expenditure to make sure that it’s affordable for you.
May Have to Release Equity in Your Property
If you have a lot of value in your home, your IP may ask you to remortgage your property to release cash. This only applies to homes that are purchased either outright, or through a mortgage, and is only an option if your credit rating allows it.
So what’s next? Inaction only makes debt worse, so we suggest you make an immediate start.
You can do that right now by using our FREE IVA Calculator. It only takes a couple of minutes and can help you decide if an IVA solution may work for you, and if you’re likely to be approved.