What is an IVA And Debt Solution
IVA debt solution, If you are struggling to repay unsecured debts a perfect solution depending on your circumstances could be entering into an individual voluntary arrangement. An IVA is a legally binding formal debt solution which when ratified by a court is legally binding. IVA’s mustn’t be confused with bankruptcy which is a more severe and potentially damaging solution although one that can be necessary for some. Only licensed insolvency practitioners can set up an IVA and they will be bound by rules set out by the financial conduct authority.
The IVA practitioner will take fees from the creditors’ repayments so you don’t actually pay them separately. Be sure to use a registered IVA company and not a debt management company who may charge additional fees.
How does it work?
Before entering into an IVA your insolvency practitioner will work out a repayment plan to all of your unsecured creditors to an amount which you can realistically afford each month. Once your creditors have agreed to an affordable repayment amount your practitioner will then send the agreement to a local court who will ratify it. Generally, you don’t need to see your practitioner in person and you will not need to attend any court hearings.
Following this, over a 5 year period, one monthly payment is made to your insolvency practitioner who then distributes this to your creditors. Any interest and charges are removed and you will not be contacted by any of these creditors during this time.
During this period you must stick to the repayment plan to avoid any further defaults. If your circumstances change inform your insolvency practitioner who can look at reducing your payments.
Once the 5 year period has ended any remaining balances will be written off and the creditors will have no right to contact you or request any further payment. You will receive a completion certificate from your insolvency practitioner and your details will be removed from the IVA register. You can then start to obtain credit again and build up your credit scoring.
Considerations before entering into an IVA
If you have considerable equity in your home you may be required to release an amount to clear some of your debt towards the end of your agreement. Your advisor will run through this with you and you need to ensure that you fully understand the implications.
It is your responsibility to keep up your monthly repayments, if you fail to do so you could be liable to be made bankrupt which should always be considered as a last resort.
If you are a solicitor or an accountant you may not eligible to enter into an IVA because of rules surrounding these professions and you may need to consider an alternative solution.
Should you come into a large sum of money through inheritance or financial gift you should inform your insolvency practitioner as you may need to pay a lump sum to your creditors?
Not all debts can be settled through an IVA such as secured finance and mortgages– again speak to your advisor if you’re in any doubt.