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Pros and Cons of an IVA

Individual Voluntary Arrangements (IVAs) provide an increasingly popular solution to debt problems for thousands of consumers and business people in Britain today. However, they are not the answer for everyone as IVAs have their pros and cons.

An IVA is a formal, legally-binding agreement between a debtor and their creditors to settle debts within a reasonable timescale. A debtor makes a repayment proposal with the help of an insolvency practitioner, and they offer to repay a certain percentage of the total debt over an agreed period of time. If the proposal is accepted, the debtor is then bound to this.Although an IVA can provide a welcome and relatively cheap way to solve debt problems, it imposes some strict restrictions on the debtor, and it is perhaps a better option for those with serious debt problems. Lets look at some of the pros and cons of IVAs.

IVA Pros

  • An IVA does not affect your profession. You can continue to work in your chosen profession, even as the director of a company or in public office.
  • There is no stigma attached to IVAs. Unlike bankruptcy, which is published in newspapers, IVAs are completely private. The only people who know about an IVA are you, your insolvency practitioner, your creditors and the courts.
  • You pay back an agreed percentage of your debts. This can be as little as 25 percent of the total amount owed.
  • IVAs are usually paid over five years, which is a relatively short time for debts to be settled in full.
  • Once an IVA has been agreed with your creditors, it is legally binding. This means that they can not change the terms, increase interest rates or change the agreement in any way. You will also be protected against further court action.
  • Your repayments are unlikely to increase during the term of the agreement. This only normally occurs if you have a significant income increase.
  • Your rights to own and keep your home are not usually affected by IVAs.
  • You can have a bank account. In theory you can legally have an overdraft and apply for more credit. However, most creditors will only agree to an IVA if the debtor agrees not to take out further credit.
  • Business people with an IVA can continue to trade as normal.

Indeed, an IVA can be a very useful option when it comes to keeping a business afloat when it is going through a bad patch.

  • IVAs are looked on more favourably by creditors than bankruptcy as it shows a commitment on the part of the debtor to repay at least part of the money owed.

    • IVA Cons

    • IVAs aren’t accessible to everyone. Your total debts must be £15,000 or over, and you must be able to afford to pay a reasonable amount, usually not under £200, each month.
    • An IVA is a legally binding agreement, and if you fail to keep up with repayments your creditors will be within their rights to take legal action against you. This could result in bankruptcy or even the repossession of your home.
    • While your home will not be at risk if you keep to the terms of an IVA, any equity on your home may have to be released to pay off your creditors. While this is not ideal, it does not mean the home itself is at risk.
    • Although IVAs are seen as a preferable alternative to bankruptcy, the term is longer. Bankruptcy can end within one to three years, while an IVA generally takes five years.
    • In most IVA agreements, creditors will insist that you do not take out further credit for the five-year term.
    • There is little difference between the credit rating received from an IVA and from bankruptcy. Both will remain on record for six years.

    IVAs provide debtors with a genuine opportunity to clear a serious debt problem cheaply and over a reasonable timescale. Although there are certainly pros and cons to individual voluntary arrangements, it would seem the pros often outweigh the cons. However, in the end, the choice is up to the individual debtor and will depend on their personal circumstances.

    If you would like to speak with someone about the possibility of choosing an IVA to take care of your debt, take minute to fill out this simple form, and one of SimplyFinance's representatives will contact you to put you in touch with an IVA specialist who will help you on your way to being debt free. 

     

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