There is often confusion between debt management programmes and IVAs. In a debt management programme, a specialist company becomes the liaison between you and your creditors to help get you debt crisis under control. Involving yourself in a debt management programme will initially have an adverse affect on your credit history. In the case of an IVA or Individual Voluntary Arrangement, the courts step into your financial situation to help bring resolution to the matter.
With an IVA, your home is protected, your credit rating is not harmed, and your job is not at risk. You can apply for a new mortgage once your finances are back on track, and six years after you have been 'discharged' from your IVA agreement, it will not show up on your credit report and so the lenders cannot base their decision on the fact that you have an IVA.
Getting a mortgage with an IVA has some disadvantages. When you have an IVA, you will need to spread your payments over a longer period of time, and you will be charged a higher rate of interest to counterbalance the fact that you are seen as a higher-risk borrower by most lenders. If you fail to comply with the terms of your IVA, your home and your other assets may be at risk unless you specifically excluded them from the terms of your IVA proposal.
So what does an IVA entail?
There are many steps involved in the process of getting an IVA. When you meet with your debt advisor, together you will go through a document called a Statement of Affairs (SOA). Your debt advisor will record the details of your financial circumstances into this form. You will sign off on the SOA and then send a hard copy of the report, along with your credit card statements, loan agreements, bank statements, wage slips, home valuation, and a copy of your passport to your counselor. Your debt counsellor will need all of those articles to prepare your SOA form.
After you send your papers to your debt advisor, he or she will compile them into a dossier that will be passed onto an Insolvency Practitioner (IP) near you. The IP will then arrange a face-to-face meeting with you in order to finalise your IVA proposal. The IP will forward your proposal to your creditors who will be given two weeks to respond. After two weeks, you will be asked to attend a creditor's meeting that will be chaired by the IP. Most creditors don't usually attend the meeting; they vote by proxy instead. It is at this time that you'll find out whether or not your IVA has been accepted, rejected, or accepted, but with modifications. Your IP will work with you to negotiate a desirable settlement if your creditors demand modifications to your IVA.
Once you decide to commit to an IVA and once it has been accepted, you may stop paying your creditors immediately. All you need to do at that point is to maintain your payments and to keep your IP informed of any changes in your circumstances. Once the term of your IVA is complete, you can financially start over with your debts in your past.
While taking out an IVA may seem a good way to solve your financial problems, it does, in fact, have a similar stigma to bankruptcy for your current creditors. If an IVA can be avoided, it's best to do so. However, if you find yourself in a situation where an IVA is unavoidable, getting a mortgage may still be possible once you have sufficient disposable income to be able to continue the terms of your IVA and contribute to a mortgage. There are specialty lenders that will give you a chance despite having an IVA on your credit record.