An Individual Voluntary Arrangement (IVA) is a formal, legally binding agreement between an individual and their creditors to repay their debts over a fixed period of time. It is a debt solution that is designed to help individuals who are struggling to repay their debts and need a structured and affordable way to do so.
IVAs are typically used by individuals who have a significant amount of unsecured debt, such as credit card debt, personal loans, and overdrafts. They are not suitable for individuals with secured debts, such as a mortgage or car loan.
How does an IVA work?
To set up an IVA, an individual must first seek the advice of a licensed insolvency practitioner (IP). The IP will assess the individual’s financial situation and advise them on whether an IVA is the right debt solution for them.
If the IP determines that an IVA is appropriate, it will help the individual to negotiate a repayment plan with their creditors. This plan will outline how the individual will repay their debts over a fixed period of time, five to six years.
The repayment plan will include a proposal for how much the individual can afford to pay each month, based on their income and expenses. The IP will also negotiate a freeze on interest and charges on the individual’s debts, which means that the total amount owed will not increase while the IVA is in place.
Once the repayment plan has been agreed upon, the IP will draw up a formal IVA proposal and submit it to the individual’s creditors for approval. If 75% of the creditors by the value of the debt agree to the proposal, it will be accepted and become legally binding.
If the IVA is approved, the individual will be required to make monthly payments to a supervisor, who will distribute the funds to the creditors according to the terms of the IVA. The supervisor will also ensure that the individual is complying with the terms of the IVA, such as providing proof of income and expenses.
Benefits of an IVA
There are several benefits to using an IVA to resolve debt problems:
- It can provide a structured and affordable way to repay debts over a fixed period of time.
- It can freeze interest and charges on the individual’s debts, which means that the total amount owed will not increase while the IVA is in place.
- It can provide protection from creditors, as they are legally bound by the terms of the IVA and cannot take further action to recover the debts.
- It can help the individual to avoid bankruptcy, which can have severe consequences for their financial situation and reputation.
Drawbacks of an IVA
There are also some drawbacks to using an IVA to resolve debt problems:
- It can be expensive, as the individual will need to pay fees to the IP and supervisor for their services.
- It can have a negative impact on the individual’s credit rating, as it will be recorded on their credit file for six years.
- It may not be suitable for individuals with secured debt.
- , such as a mortgage or car loan.
- It may not be available to individuals who are self-employed or have complex financial affairs.
Alternatives to an IVA
There are several alternatives to an IVA that individuals may wish to consider if they are struggling to repay their debts:
- Debt management plan: This is an informal arrangement with creditors to repay debts over a longer period of time at a reduced rate. It does not have the same legal protection as an IVA.
- Debt consolidation loan: This involves taking out a new loan to pay off existing debts, which can simplify the repayment process and potentially reduce the.
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