How an IVA Could Be Your First Step Towards Financial Freedom

What is an Individual Voluntary Arrangement (IVA)?

An Individual Voluntary Arrangement (IVA) is a formal debt solution to help individuals cope with unmanageable debt, avoiding more severe consequences like bankruptcy. Legally binding between a person and their creditors, an IVA is designed to consolidate debts into a single, affordable monthly payment. This agreement typically lasts for five or six years, after which the remaining debt is often written off. This arrangement must be set up by a qualified professional known as an insolvency practitioner (IP).

How Does an IVA Work?

To initiate an IVA, you will need to collaborate with an insolvency practitioner. This financial expert will assess your financial situation and devise a proposal to present to your creditors. The proposal includes your offer of repayment which can be a monthly payment, a lump sum amount, or a combination of both, depending on what assets you might have.

For the IVA to be approved, creditors representing at least 75% of your debt value must agree to it. Once approved, the IVA becomes binding for all parties involved. This means creditors can no longer pursue legal action, and you must commit to regular payments as outlined in the agreement.

Benefits of an IVA

An IVA presents several benefits, including:

• Debt relief: After the term of your IVA, remaining debts included in the arrangement are usually written off.
• Legal protection: Once in effect, creditors cannot take any further legal action against you as long as you meet the terms.
• Fixed payments: The amount you pay is based on what you can afford, not what creditors demand.
• Potential to save money: Many people find that an IVA is less expensive than continuing to struggle with repaying debts at their original interest rates.

However, it is important to consider that an IVA will impact your credit rating for six years, and there are restrictions on spending and borrowing during the term of the IVA.

Eligibility for an IVA

Not everyone qualifies for an IVA. Generally, to be eligible for an IVA, you need to:

• Live in England, Wales, or Northern Ireland (Scotland has a similar solution called a Debt Arrangement Scheme).
• Owe money to two or more creditors.
• Have a regular source of income.
• Be unable to pay your debts as they fall due.

Choosing an Insolvency Practitioner

Selecting the right insolvency practitioner is crucial. You should look for someone who is licensed and has experience in dealing with IVAs. The Insolvency Service offers a tool to find licensed practitioners in your area. Moreover, consider consulting with more than one practitioner, as fees and approaches can vary significantly.

Actionable Tips Before Entering an IVA

Before you decide to proceed with an IVA, there are practical steps you should take:

• Analyze your budget: Be realistic about what you can afford to pay each month against your debts.
• Gather detailed financial information: This includes all your debts, income, and regular expenditure.
• Seek free advice: Organisations like StepChange can provide free debt advice and help you understand if an IVA is suitable for your situation.
• Consider all alternatives: Ensure that an IVA is actually the best option, comparing it to other solutions like a Debt Management Plan or bankruptcy.

Conclusion

An IVA can be a viable solution for dealing with severe debt, but it’s not suitable for everyone. Understanding the terms, the impact on your financial status, and considering the effect it will have on your credit rating are essential steps before entering into an IVA. Make sure to consult a reputable insolvency practitioner and seek free advice from debt help organizations to make an informed decision.