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It goes without saying that there are many positives of an Individual Voluntary Arrangement (IVA), including the weight it lifts off of your shoulders and is one of the best debt management solutions for people that find they’re struggling to pay off the money they owe.
But an IVA is a legally binding agreement, and it’s essential to think about whether it’s right for you in the long term. Many people find it’s the most effective debt solution because it keeps the creditors at bay, and all outstanding debts are rolled into one affordable monthly payment.
If you’re unsure whether an IVA will suit you, it’s essential to weigh up the pros and cons. In this guide, we’ll reveal some of the negative aspects of an IVA so that you can make an informed decision about your future.
The Basics of an IVA Debt Solution
An Individual Voluntary Arrangement is about developing an understanding with your creditors to relieve the stress debt brings but still pay back what you owe. A company registered with the Insolvency Practitioners Association can help you to evaluate your debt repayment options and arrange an IVA.
When you enter an IVA agreement, you’ll have to pay a monthly amount until your debt is removed. Once you’ve paid off the remaining debt, you can rebuild your credit rating, and your name will be removed from the insolvency register.
So with all of these benefits, it’s important to remember that an IVA is a convenient solution and can offer more security than other debt solutions.
The Potential Disadvantages of an IVA
You Can’t Use An IVA For Some Unsecured DebtIn some cases, your debts won’t be eligible for an IVA, which can mean it’s not the best solution for your needs. These debts include:
- Court Fines
- Student Loans
- Child Support/Maintenance
- Social Fund Loans
It Can Impact Your Credit RatingEvery Individual Voluntary Agreement goes onto a register, which is accessible to the public and various lenders. People will be able to look at the register and will see that you have outstanding debts. Of course, this can impact your credit file. It might be challenging to gain employment in certain professions, such as the legal and financial sectors, because both review a potential employee’s financial circumstances. Lenders and credit reference agencies will also be able to view your insolvency mark, which means you could struggle to get credit for essential items and costs, including mobile phone contracts, new cars and any other financial solutions. In most cases, people find they’re subject to high-interest rates; but it’s not all bad. Once you complete the IVA, you won’t have to make any further payments, and it will be removed from your file after six years. You can rebuild your credit rating slowly, and many people decide to use an IVA solution because it allows them to start afresh and avoid creditor harassment.
You’ll Have to Put Windfalls Into Your IVAOne of the biggest IVA cons is that you’ll have many financial restrictions placed on you when you enter into an agreement. While many people don’t see this as an issue, you’ll need to put the funds into your account if you receive a windfall. But what counts as a windfall? Well, it could be a bonus from work, inheritance payments or a settlement. If the amount you receive is over £500, you’ll be legally obliged to pay the money into your IVA account. The primary purpose of an IVA is to pay back your debt amount, so some people don’t like to enter into an arrangement because it means they don’t get to spend their windfall. However, it can help you pay off your debts quicker, and you’ll enjoy more freedom in the future.
There’s a Possibility of Equity ExtensionAny insolvency practitioner will tell you that you could be asked to release your homes available equity when you approach the end of your agreed monthly payments. If you fail to re-mortgage your property, there could be a 12-month extension for your case.
The Agreement Could End If You Fail To Keep Up With Your Monthly PaymentsYour IVA will take place during a fixed period, and it’s essential to understand that you’re legally bound to make the payments and ensure you stick to the agreement. When you have your first insolvency appointment, your practitioner will explain your legal obligations, and then it’s up to you to keep up with your monthly repayments. If you fail to do this, your insolvency practitioners will terminate your arrangement, which means that your creditors can chase you to repay the debt in full. When you enter into an IVA, your creditors agree to stop all interest increases and allow you to repay your debts over a fixed period, so you’ll find that you’ll have extra fees and could be dealing with bankruptcy. In some cases, you might be able to take advantage of payment holidays, which means you can have a short-term break from your payment plan, but this depends on your individual circumstances.
So, Is An IVA Right For You?
Entering into an IVA agreement is a serious decision that you shouldn’t take lightly. While some people manage debts well, others might find they need a concrete plan of action that gives them the opportunity to pay back the money they owe without incurring extra interest and charges.
In our opinion, when it comes to weighing up the advantages and disadvantages of entering into an IVA, the pros far outweigh the cons – especially if you owe money and want to be eventually debt-free.
If you would like some debt advice or more information on how an IVA proposal works, our team is on hand to provide free help and answer your questions about the process. Our independent service can also handle your creditor contact and support you to build a better future.