Considering entering an individual voluntary arrangement? Read on to find out the important IVA pros and cons that could help you make your decision.
An individual voluntary arrangement – or IVA for short – is a formal debt management solution that can help you to avoid falling behind on your unsecured debt If you’re struggling to make your repayments, an IVA allows you to continue contributing towards your debts in a more manageable way. But, like every financial decision, there are IVA pros and cons to consider before you take the plunge.
What are the pros of IVA?
Legally binding
When you apply for an IVA, you’ll enter into an agreement that is legally binding. As a formal document approved by the court and creditors, an individual voluntary arrangement doesn’t just mean you’re committed to making regular affordable repayments, it means your creditors can’t back out of the agreement either. They also can’t take any further action to recover the debt such as applying for a County Court Judgement (CCJ) against you, which should mean you won’t have to worry about any more stressful letters or phone calls.
Tailored to your circumstances
There’s a minimum payment of £75 for an IVA. Your insolvency practitioner will propose an arrangement that is affordable, fixed, and reliable. They can put together a plan that allows you to repay your debts over five or six years. You might also be able to make a lump sum payment to end the IVA sooner if your circumstances change over time and you find yourself in a more comfortable financial position.
Can lead to discharged debt
How successful is an IVA? When you come to the end of your agreement, you’ll be able to move on from your debt and the arrangement will be removed from the Individual Insolvency Register within a week of the paperwork being issued IVAs can be viewed more favourably than bankruptcy by other finance providers and, if your full debt isn’t paid off within the agreed time, you don’t have to keep making payments; your debt will be automatically discharged.
What are the cons of IVA?
Can be expensive
When looking to arrange an IVA, you’ll have to secure the services of an insolvency practitioner who is authorised to provide IVA advice – and they don’t always come cheap. You might find that setting up an arrangement is more expensive than some other debt management solutions, but it’s well worth getting a quote first when exploring your debt management options.
Not everyone is eligible
Unfortunately, an IVA isn’t available to everyone; there are certain criteria that you need to meet. IVAs can’t be used to pay off student loans, magistrates’ court fines, secured car finance, child maintenance arrears, social fund loans, or TV licence arrears. You’ll also typically need to have several creditors and a large amount of debt as well as a long-term source of income to cover your new repayments. You can only set up an individual voluntary arrangement through an insolvency practitioner and your creditors are under no obligation to agree to it, Mortgage arrears can’t be included as a debt.
Can affect your credit score
While an IVA can help to manage your debt and stop you from missing payments, it can impact your financial circumstances in other ways. You must keep up with your repayments through the IVA term, even if your situation gets more difficult. If you wish to cancel your arrangement, you could face penalties including bankruptcy. Your arrangement will also stay on your credit report for six years, which could reduce your chances of securing future credit as lenders will be able to see that you’ve struggled to make payments in the past.
Wondering whether an IVA is the right choice for you? Our friendly debt advisors are here to help you compare the debt management options available and make an informed choice. Find out more by calling us on 0161 8260 585 or send us an email here.
