What is an IVA?
An Individual Voluntary Arrangement (IVA) is a formal and legally binding agreement between you and your creditors to pay off your debts over a fixed period, usually between five and six years. The arrangement is managed by a licensed insolvency practitioner / FCA Regulated Debt Advisors who helps set up the IVA, based on what you can afford to pay each month. The IVA allows you to make reduced monthly payments without being chased by your creditors or facing additional legal actions. Once the IVA is completed, any remaining debt is usually written off.
IVA vs Bankruptcy: Which is the Right Choice for You?
When deciding between an IVA and bankruptcy, it’s essential to weigh the benefits and consequences of each option. An IVA is a preferable choice if you want to avoid losing your home or other valuable assets. It also allows for more privacy than bankruptcy, which becomes part of a public record. However, it can take several years to complete, and you must stick to the repayment plan to avoid failure.
On the other hand, bankruptcy is quicker, typically lasting one year, and leads to the cancellation of most unsecured debts. However, with bankruptcy, you risk losing valuable assets like your house or car, and it could affect your future employment, especially in financial sectors. Bankruptcy also significantly impacts your credit score, but it offers a quicker solution to becoming debt-free.
How to Apply for an IVA
To apply for an IVA, follow these steps:
- Seek Advice: Contact a debt advisor or insolvency practitioner who can assess your financial situation and determine if an IVA is suitable for you.
- Submit Financial Information: Provide details about your income, expenses, and debt. The insolvency practitioner will use this to propose an affordable payment plan to your creditors.
- Creditor Agreement: Your creditors will vote to accept or reject the proposal. If 75% (by debt value) agree, the IVA is approved, and all creditors must comply.
- Start Making Payments: Once the IVA is in place, make the agreed monthly payments to your insolvency practitioner. After the agreed term, any remaining eligible debt is written off.