IVA advice Advantages and Disadvantages

If you are struggling with debt, an Individual Voluntary Arrangement (IVA) may be an option for you – at X-debt, we offer free debt advice, including IVA advice, to individuals that are faced with paying unaffordable sums each month.

This article outlines the main advantages and disadvantages of IVAs. However, if you require specific professional IVA advice on your debts please contact us now.

An IVA is a legally binding agreement between you and your lenders. It works by permitting you to repay only as much as you can afford towards your debts every month, typically for five years. At the end of this agreement, assuming you satisfy your side of the agreement, the remainder of your unsecured debt within the arrangement will be written off by your lenders and you will be legally debt-free. Your monthly payments to your IVA will be based on how much you can afford once your other essential costs (such as mortgage, rent, bills and groceries) have all been covered.

As with many things, there are advantages and disadvantages to IVAs which is why seeking IVA advice is important. Firstly, one of the obvious advantages is the affordable repayments. These are pre-set so you will have the reassurance of knowing how much you have to pay each month and knowing you can afford it. The fixed term of approximately five years is also attractive for individuals as they can see an end to their debts. Entering into an IVA transfers the advantage away from the creditor by blocking the creditor’s right to take legal action against the debtor, whilst also stopping the creditors from being able to add financial penalties, such as interest charges and late payment charges.

The disadvantages of IVAs must be highlighted to individuals so they know the restrictions of the agreement, as they represent a really good solution for some financial circumstances but not for others. IVAs are designed to deal with unsecured debts such as loans, overdrafts and credit cards; they do not deal with secured debts such as mortgages. One of the main restrictions on the debtor will be on the ability to borrow while your IVA is in progress: you will not be allowed to undertake any more debt without your Insolvency Practitioner`s permission.  In addition, if you own a property this will require a revaluation towards the end of the IVA and any realisable equity may have to be brought into the arrangement. However, in many cases this equity may not be realisable for example, if there are no lenders willing to offer a mortgage, the amount of equity is relatively small or the cost of a remortgage is prohibitive. In some cases it is possible, where equity cannot be realised, that a 12 month extension is added to the IVA term where payments taken are in lieu of this equity.

It is important to note that an IVA is a method of insolvency, and will have a substantial impact on your credit rating. A record of your IVA will remain on your credit history for six years after it begins. This means that you will have a clean credit history a year after your IVA has finished (assuming it`s a five year IVA).

For professional IVA advice, visit us at X-debt – we offer personal services to suit the needs of each of our clients. For those looking for an alternative to IVA debt advice, we also offer general free advice on debt.