IVA (Individual Voluntary Arrangement)
If you can't repay your debts in a reasonable time, an IVA (Individual Voluntary Arrangement) could be the answer to your financial problems.
An IVA could:
- Write off the debt that you can't afford to repay
- Reduce your monthly payments
- Freeze the interest on your debts
- Stop any (further) legal action from your lenders
- Give you a clear date when you know you'll be debt-free
What's more, it could help you stay in your home - whether you're a homeowner or a tenant - as your payments to your IVA would be based on what you can afford after you've accounted for all your essential expenses, from mortgage/rent payments to petrol, food and clothing.
If you're wondering why your lenders would agree to all of this, read on.
What is an IVA?
An IVA is a form of insolvency, often regarded as a preferable alternative to bankruptcy.
It's a legally binding agreement between you and your lenders. Basically, they would agree to all the points listed above if you can commit to paying as much as you can afford for (in most cases) five years.
How does it work?
If an IVA looks like the best answer to your debt problems, you'd work with an IP (Insolvency Practitioner) to draw up an IVA Proposal, which tells your lenders how you think the IVA could work: how much you'd pay, how much equity you could free up, and so on.
If enough of them agree to it, your IVA can start. In most cases, this means you'd spend five years making monthly payments to your IP, who would distribute funds among your lenders as agreed in your IVA Proposal. Keep it up for five years and your outstanding debts will be written off - and you will be debt-free.
Are there any downsides?
If you do not keep up with your agreed payments, you could be made bankrupt. However unlike bankruptcy, your IVA wouldn't be published in newspapers, but it would appear in the Insolvency Register, which is publicly available.
If you're a homeowner, you may have to release some of the equity in your home, although you're very unlikely to have to sell it.
If your circumstances change and you can't keep up with your payments, your IVA could fail (unless you, your IP and your lenders can agree on some changes that could make it work).
And if your circumstances improve, you may have to pay more each month.
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