Taking out an IVA can be an exciting but equally daunting experience!
You’re about to start something that will help you become 100% debt free. 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.
You can check if you are eligible for an IVA by using our free IVA calculator below.
IVA Pros (IVA Advantages)
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.
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.
Your creditors will 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.
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 £70 per month.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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).
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.
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)
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.
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).
You will be asked to make a monthly payment
Unlike most bankruptcies, you will be asked to pay a monthly amount (starting from £70) 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.
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.