Understanding an Individual Voluntary Arrangement (IVA)

Every year, thousands of consumers in the UK find themselves burdened by excessive debt. If you are one of these consumers, you may find it difficult to even make your minimum monthly payments on credit card, line of credit, and other debt accounts. If you can no longer manage your debt, you may need to seek relief through a plan such as an individual voluntary arrangement (IVA). This strategy might be just what you need to protect your finances and get out of debt.

What is an IVA?

An IVA is a plan that allows you to pay back a portion of what you owe to your creditors. An insolvency practitioner will work with your individual creditors to determine a repayment amount that is acceptable. After the agreement is in place, you would make a monthly payment under the plan - the payment would be distributed to each of your creditors according to the terms of the agreement. Once you have paid the negotiated percentage of your balance, the remaining portion would be written off. A write-off means that you would have no obligation to pay the remaining amount.

In most cases, an IVA carries a plan length of five years. If you are able to make a lump sum payment toward your negotiated balance percentage, though, you might be able to eliminate your debt more quickly.

What are the Advantages of an IVA?

An IVA allows you to pay less than you owe on your consumer debts. A reduced payoff amount can allow you to eliminate your debt much more efficiently than if you attempted to pay off your account balances on your own. Balance reduction can also save you a significant amount of money over the life of the plan because you will not have to pay the full balance of each account.

If you have fallen behind on your payments, an IVA can protect you against bankruptcy. Typically, a bankruptcy involves losing your valuable assets, such as your home or personal possessions, in order to satisfy your creditors. Bankruptcy can also cause severe damage to your creditworthiness for years in the future. By setting up an IVA, you provide assurance to your creditors that you intend to repay at least a portion of your debts. Because bankruptcy involves considerable expenses for creditors, they typically will withhold pursuing bankruptcy as long as you adhere to the terms of your agreement.

If a bankruptcy order has been issued against you, establishment of an IVA may halt bankruptcy proceedings. Your insolvency practitioner can issue an Interim Order to the court, which suspends bankruptcy proceedings so that you and the insolvency practitioner can develop a repayment plan. Keep in mind, though, that continued suspension of bankruptcy is contingent upon successful negotiation with your creditors. Because the plan must include repayment of bankruptcy costs incurred by creditors, it can be difficult to successfully negotiate a repayment amount that is mutually acceptable.

An IVA allows you to become debt-free within a specified timeframe. If you try to handle a large amount of debt on your own, it can be difficult to determine when you will eliminate your debt. Consumers commonly spend decades trying to pay off credit lines, credit cards, and other debts. Typically, an IVA allows you to get out of debt within five years.

IVA Considerations

Although an IVA can be an effective tool for eliminating debt and protecting yourself against creditors, I is not appropriate for every circumstance. You must demonstrate that you have the financial resources to make your plan payments. You must also owe more than £12,000 in debt in order to qualify for an IVA. If you do not meet these requirements, you may have few options outside of bankruptcy.

An IVA might not be appropriate if you can currently handle your debt payments but simply want to expedite the process of getting out of debt. After your IVA is established, the plan will be noted in your credit file. An IVA entry can make it difficult to obtain a credit card or other loan until you complete the plan. If a lender is willing to offer you credit, you can expect to pay high interest rates and fees on the amounts you borrow.

Sam Jones the author and industry expert on finances, recommends to his readers who require advice and guidance on financial matters to visit  http://www.uswitch.com/debt-help/7-steps-to-get-out-of-debt/