An IVA, or an Individual Voluntary Arrangement, is an effective alternative to bankruptcy. It is a legally binding contract between you and your creditors. In most of the cases, it would involve your creditors consenting to reduce the debt balances you owe to them, provided that you keep paying them a monthly payment. The term usually lasts for five years. At the end of this period, one is considered to be debt free, even if one hasn’t paid the entire amount.
Given IVA’s legal nature, you would need to get it organised through a licensed Insolvency Practitioner. This practitioner would be dealing with your creditors on your behalf.
Advantages of an IVA
- An IVA is a great alternative to avoid bankruptcy for people going through financial difficulties.
- Unlike bankruptcy, an IVA agreement can protect your assets.
- The fees associated with an IVA is also far less than that which is involved in the bankruptcy process.
- The other best part is that IVA is not advertised as is bankruptcy. So, it will remain, more or less a private affair.
Disadvantages of an IVA
- On the negative side, an IVA lasts far longer than does a bankruptcy. Although bankruptcy lasts for only one year, IVA runs up to 5.
- You are not allowed to apply for any further credit until this 5 year period is over.
- An IVA also affects your credit rating, and stays there on your credit report for a period extending up to six years.
How Does it Work?
A professional debt advisor communicates and negotiates with your creditors on your behalf. You may be asked to supply different information including details on your income and expenses. Based on the information you supply, it would be worked out as to how much it would be affordable for you to repay. A proposal is then put forward to your creditors and as long as 75% of them agree to it, the IVA will commence.
The agreement would be written into a legal proposal and your advisor would approach the court to create an Interim Order.
What all can be applied for In an IVA?
The meaning of an IVA is not just limited to a reduced repayment contract. One can also negotiate for a postponement of his/her debts. You can utilise these options, if you think your current financial difficulties are only temporary, and you are confident that after some time you would be able to resume repaying your debts in a normal manner.
