Freelancers and contractors often face unique financial challenges. Unlike traditional employees, they don’t have a fixed salary or employer-sponsored benefits, making it harder to navigate unexpected expenses or periods of reduced income. If you’re struggling with debt, an Individual Voluntary Arrangement (IVA) could be the solution you need to regain financial stability while protecting your future.
This blog explores how an IVA can help freelancers and contractors resolve financial stress and maintain long-term financial stability.
What is an IVA?
An Individual Voluntary Arrangement (IVA) is a formal agreement between you and your creditors to repay a portion of your debts over a set period (typically 5-6 years). After this period, any remaining eligible debt is written off. This structured plan allows you to consolidate your debts, reduce the overall amount owed, and avoid the severe consequences of bankruptcy.
How Can an IVA Help Freelancers and Contractors?
As a freelancer or contractor, your income may fluctuate, and it’s easy to fall behind on payments when work slows down. Here’s how an IVA can help you manage and eliminate debt:
- Affordable Repayment Plan: With an IVA, you’ll make regular, fixed monthly payments based on your income. Since freelancers and contractors don’t have a fixed salary, this plan is flexible and can be adjusted according to your monthly earnings. This ensures you’re not overburdened with unaffordable repayments while still staying on track to resolve your debt.
- Protection from Creditors: Once an IVA is in place, creditors can no longer contact you for payment or take legal action against you. This provides financial peace of mind, allowing you to focus on your work without the constant stress of debt collectors or potential court proceedings.
- Debt Write-Off: After completing the IVA term, any remaining debt that’s eligible will be written off, which means you can emerge from the arrangement free from financial burdens and start fresh.
- Asset Protection: Unlike bankruptcy, where you may have to sell assets like your home or car, an IVA allows you to protect most of your essential possessions. As a freelancer or contractor, your tools, technology, or other equipment vital for your work are usually protected.
- Flexible Terms for Irregular Income: Freelancers and contractors often experience periods of irregular or inconsistent income. If you can’t make a payment due to a lack of work or financial hardship, your IVA advisor can help you negotiate with creditors to reduce or defer payments. This flexibility is key for maintaining your livelihood while tackling your debts.
Who Is Eligible for an IVA?
You may be eligible for an IVA if:
- You have unsecured debt of at least £6,000.
- You owe money to two or more creditors.
- You can afford a regular monthly payment (even if that’s a small amount).
- You live in England, Wales, or Northern Ireland.
Freelancers and contractors are well-suited for this arrangement, especially if they have debts from multiple creditors such as credit cards, personal loans, or overdue taxes.
How Does an IVA Work for Freelancers?
For freelancers, the IVA process is straightforward:
- Initial Assessment: You’ll consult with an insolvency practitioner (IP) to assess your financial situation, including income, expenses, and outstanding debt.
- Proposal: The IP will create a proposal for your creditors, outlining how much you can realistically pay each month and the total repayment period.
- Creditors’ Approval: The proposal is presented to your creditors, and they must agree for the IVA to proceed. If 75% of creditors (by debt value) agree, the IVA is approved.
- Repayment: You’ll begin making monthly payments, with the IVA lasting 5-6 years. After the agreed period, any remaining debt is written off.
What Are the Benefits of an IVA for Freelancers and Contractors?
- Clear Financial Plan: Having a clear, manageable repayment plan helps you maintain financial stability and focus on building your career without the constant stress of financial uncertainty.
- No More Debt Collectors: With an IVA in place, creditors cannot contact you, freeing you from harassment and allowing you to get back on track.
- Reduced Interest and Charges: An IVA can reduce the interest rates on your debt, meaning you pay less overall.
What Are the Risks?
While an IVA offers a structured path to financial recovery, there are some risks, including:
- Impact on Credit Score: An IVA will affect your credit score for up to six years.
- Commitment to Repayments: If your income fluctuates, you’ll need to stick to your repayment plan, which can be challenging during lean periods.
- Asset Considerations: Depending on your situation, you may need to release equity from your property at the end of the IVA term.
How We Can Help
At Apply for IVA, we specialize in helping freelancers and contractors navigate the IVA process. Our experienced team provides personalized advice to ensure your IVA is tailored to your unique financial situation. We’ll guide you through each step, from the initial consultation to the final debt write-off, helping you resolve financial stress and get back to focusing on your career.
Get Started Today
If you’re struggling with debt and need a solution, an IVA might be the answer. Contact us today for a free consultation to see how we can help you manage and eliminate your debt while maintaining financial stability as a freelancer or contractor.