When Should I Use An Iva?
According to the Insolvency Service, over 4000 people use an individual voluntary arrangement each month to resolve their personal debt problems. Clearly the IVA is a very popular debt management solution but is it right for everybody?
An individual voluntary arrangement (IVA) is an agreement with creditors to settle personal debts over a fixed period of time. Creditors agree to accept reduced payments over a period of normally 5 years. At the end of this time, any outstanding debt is written off and the individual is left debt free.
By using an IVA, individuals can commonly write off between 50%-70% of their debt.
Despite being an excellent way to deal with personal debt problems, an individual voluntary arrangement will not suit everyone. There are specific circumstances when an IVA can and can't be used.
How much is your debt?
Generally speaking, in order to make an IVA work, you should owe at least 18,000 to your unsecured creditors. You should also owe money to two or more different banks. Where debts are lower than 18,000 it becomes increasingly likely that you will be able to repay the debt you owe within 5 years by simply using a debt management plan.
Is your income sustainable?
An individual voluntary arrangement is a formal legally binding agreement. If you start an IVA and then find that you are unable to maintain the agreed payments, you may be at risk of being declared bankrupt. As such, before starting, you should be relatively confident that you can fund the monthly payments.
It is possible to carry out an IVA without a sustainable income. However, in these circumstances you need to make available a single lump sum which could be used to pay off the IVA in full at the beginning of the agreement.
Home owners and tenants
You can carry out an IVA whether you are a home owner or renting your property. Generally home owners will consider an IVA because the agreement will allow them to maintain control of their property. If there is equity in the home, some of this may have to be released to give creditors a better return. However, this is a far better option than bankruptcy where the house may have to be sold altogether.
People who rent their properties are not at risk of losing their home if they were to declare bankruptcy. As such, many more people who are tenants may consider declaring bankruptcy rather than undertaking an IVA.
Company directors
If a director of a limited company gets into financial difficulty, an individual voluntary arrangement may be an ideal solution for resolving this problem. Unlike bankruptcy, there are no restrictions on people continuing to act as directors if they have an IVA. In fact, the IVA legislation was actually introduced with the intention of helping business people deal with their debt problems.
As with all debt solutions, the suitability of an individual voluntary arrangement will very much depend on your individual circumstances. An IVA can be an ideal solution for one individual but may not work for another for a number of different reasons. As always, before making a decision about which debt solution is right for you, you should discuss your financial position with an expert who will be able to explain the merits of all the different options in the context of your situation.
An individual voluntary arrangement (IVA) is an agreement with creditors to settle personal debts over a fixed period of time. Creditors agree to accept reduced payments over a period of normally 5 years. At the end of this time, any outstanding debt is written off and the individual is left debt free.
By using an IVA, individuals can commonly write off between 50%-70% of their debt.
Despite being an excellent way to deal with personal debt problems, an individual voluntary arrangement will not suit everyone. There are specific circumstances when an IVA can and can't be used.
How much is your debt?
Generally speaking, in order to make an IVA work, you should owe at least 18,000 to your unsecured creditors. You should also owe money to two or more different banks. Where debts are lower than 18,000 it becomes increasingly likely that you will be able to repay the debt you owe within 5 years by simply using a debt management plan.
Is your income sustainable?
An individual voluntary arrangement is a formal legally binding agreement. If you start an IVA and then find that you are unable to maintain the agreed payments, you may be at risk of being declared bankrupt. As such, before starting, you should be relatively confident that you can fund the monthly payments.
It is possible to carry out an IVA without a sustainable income. However, in these circumstances you need to make available a single lump sum which could be used to pay off the IVA in full at the beginning of the agreement.
Home owners and tenants
You can carry out an IVA whether you are a home owner or renting your property. Generally home owners will consider an IVA because the agreement will allow them to maintain control of their property. If there is equity in the home, some of this may have to be released to give creditors a better return. However, this is a far better option than bankruptcy where the house may have to be sold altogether.
People who rent their properties are not at risk of losing their home if they were to declare bankruptcy. As such, many more people who are tenants may consider declaring bankruptcy rather than undertaking an IVA.
Company directors
If a director of a limited company gets into financial difficulty, an individual voluntary arrangement may be an ideal solution for resolving this problem. Unlike bankruptcy, there are no restrictions on people continuing to act as directors if they have an IVA. In fact, the IVA legislation was actually introduced with the intention of helping business people deal with their debt problems.
As with all debt solutions, the suitability of an individual voluntary arrangement will very much depend on your individual circumstances. An IVA can be an ideal solution for one individual but may not work for another for a number of different reasons. As always, before making a decision about which debt solution is right for you, you should discuss your financial position with an expert who will be able to explain the merits of all the different options in the context of your situation.
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