The Good and Bad Points of an IVA (Individual Voluntary Arrangement)

An IVA, or Individual Voluntary Arrangement, is a way of dealing with serious debt problems while avoiding bankruptcy. The basic idea is to draw up a budget setting out what you can afford to pay to each creditor, and have your creditors agree to these reduced payments for a period of five years, after which any outstanding debts are wiped out.

An IVA needs to be drawn up by a licensed insolvency practitioner, and once agreed before a court it becomes legally binding. If you're considering an IVA, what are the advantages and disadvantages?

IVA Benefits:

Affordable Repayments

The IVA will be drawn up to allow for realistically affordable repayments to be made each month, even where these don't cover the whole debt. Creditors are made aware that the alternative to these lower payments is liiely to be bankruptcy, and no repayments at all.

Interest Frozen

No interest is charged on debts which are subject to an IVA, meaning that your debt will stop spiraling upwards.

Recovery Action Halted

Once an IVA is agreed, your creditors must stop any further recovery action so long as you keep to the terms of the agreement. This also means that no further penalties or charges can be added to your debts.

Debts Written Off

Once the IVA period of five years is over, all remaining debt is legally written off. In some cases, this can be up to 75% of the original amount of debt.

IVA Disadvantages:

No New Credit

People who are in an IVA are legally barred from taking out any further credit while the arrangement is in place. While this might cause some problems, such as being unable to move home or replace a car, it only makes sense that if you're unable to meet existing debts no new ones should be created.

Five Year Period

An IVA lasts for five years, during which time you'll be living on a very restricted budget. Bankruptcy, in comparison, lasts for only one to three years.

Severe Credit Damage

An IVA on your credit history will make obtaining further credit extremely difficult in the future, even once you're again legally allowed to borrow. Considering that items on your credit file remain for six years, and the period of an IVA is five years, you're looking at eleven years of unavailable or severely restricted credit.

So Is an IVA for You?

Despite many newspaper articles and websites describing an IVA as an easy way out of debt problems, in reality it's a very serious business with long lasting consequences.

If your debt problems are so severe that bankruptcy is a real threat, then an IVA is certainly worth considering. However, seek qualified advice before going down this route.

Brief Bankruptcy Guide