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Pros and Cons of an IVA

Pros and Cons of an IVA

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 660 0411 or send us an email here.

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Credit Score

Credit Score Pop Up Wording : An Individual Voluntary Arrangement (IVA) is a formal agreement with creditors to repay a portion of your debts over time, but it does have an impact on your credit score and it will be difficult to obtain further credit whilst on an IVA. Once an IVA is approved, it is recorded on your credit report and will typically remain there for six years from the date it starts.
However, it’s important to note this is the case for most debt solutions and your credit score will likely already have been affected by being in debt in the first place.
Once your IVA is complete you will get a fresh start to begin rebuilding your credit rating.

Fees

IVA costs are charged for the preparation of your proposal and the administration of the arrangement for the full term (usually 5 years) these costs are charged from the monthly contributions you make into the IVA and are not in addition. Costs will only be recovered on approval of your arrangement and once you commence making payments to it. The fees for preparation of the proposal to creditors and calling the meeting for creditors to vote on its approval are called nominees fees, the fees for running the arrangement once approved are called supervisors fees. There are also some expenses incurred in the running of the arrangement such as the registration fee and the statutory insurance that needs to be taken by law, these are called disbursements. For our arrangements, the total of all of these is £3,650 although this may be adjusted by creditors when they vote on whether to accept. No matter what the end total of costs come to, you can be rest assured that these will be taken from the monthly payment we agree with you.