If you are struggling with an unmanageable level of debt that you don’t think you’ll ever be able to repay, an IVA (Individual Voluntary Arrangement) could be suitable for you.
An IVA is a legally binding debt solution between you and your unsecured creditors, and would (in most cases) only be suitable for you if you could not afford to repay your debts within a reasonable period of time – but could commit to making reduced monthly payments.
IVAs usually last for five years, and during this time, the majority of your disposable income will be put towards repaying your debts. Assuming all goes well, any outstanding unsecured debt will be written off at the end of the IVA.
Before an IVA
Before you can enter an IVA, you will need to speak with a professional debt adviser about your situation. You may find that, depending on your situation, an alternative debt solution would prove to be a better way to clear your debts.
However, if the debt adviser thinks that an IVA would be the most suitable solution for you (and you decide to go ahead and enter one), you and your IP (Insolvency Practitioner) will work together to draw up a proposal to give to your unsecured creditors.
This proposal will provide details of how you plan to repay your debt, and how much money your creditors are likely to get if the IVA goes ahead.
For your IVA to begin, voting creditors who ‘own’ at least 75% of your debt must accept the terms laid down in your proposal. If enough of your creditors agree, your IVA can start and all interest on your unsecured debts will be frozen.
During an IVA
During your IVA, you will make monthly payments to your IP, who will subsequently distribute money amongst your creditors as agreed. In most cases, your payments will go on for a total of five years (60 months).
Note that because an IVA is a legally binding debt solution, your creditors cannot change the terms of the agreement once it has started, or back out of it altogether (unless you fail to uphold your side of the agreement).
If you are a homeowner, you may be required to release some of the equity in your property half way through the final year of the agreement. The money you release will be used to repay more of your debt.
After an IVA
Once your IVA has drawn to a successful close, any remaining unsecured debt will be written off.
Please bear in mind that your IVA would be recorded on your credit report for six years from the time it starts, affecting the cost and/or availability of credit for this time.