Are There Any Negatives to an IVA?

Become Debt-Free with an Individual Voluntary Arrangement

An Individual Voluntary Arrangement helps someone write off debt and become debt free in 60 months. Does an IVA really write-off 75% of unsecured debt?

Unsecured debt in the UK currently stands at a staggering 0.2 trillion pounds. Individual Voluntary Arrangements, also known as IVA's, have grown in popularity as an alternative debt solution to personal bankruptcy. Their popularity has grown because they allow someone to keep their home, maintain a professional status and avoid unwelcome publicity.

What is an Individual Voluntary Arrangement?

Unlike a debt management plan, an IVA is a legally binding agreement between a debtor and his creditors. It requires that a debtor makes 60 monthly payments into the agreement in return for the remaining debt being written-off. This means that this person is now debt free and has a fresh start.

Does an IVA Write-off 75% of Debt?

The main selling point of the Individual Voluntary Arrangement is that it able to write-off debt. Most people struggling with financial difficulties will have seen adverts telling them that 75% of unsecured borrowing, such as credit card debt, personal overdrafts and unsecured loans, can be written off.

Insolvency practitioner fees are about £6,000. There is also a requirement that a bare minimum of 25 pence for every pound of unsecured debt goes to the creditors. These requirements make a 75% debt write-off virtually impossible. This is given further credence by the fact that a home owner is expected to get a remortgage at the end of year 4 to contribute toward the agreement.

The practical reality is that many people struggling with serious debt problems will pay back a large proportion of their debt. However, it does freeze interest, provides a defined term for when financial difficulties will end and prevents further creditor harassment.

Do Individual Voluntary Arrangements Protect Professional Status?

One of the main selling points of an IVA is that it allows someone to continue working in a professional occupation. Sadly, many money-handling professionals will lose their job when they are declared insolvent and will find it very difficult to find an alternative employer.

The IVA and Financial Scrutiny

Whilst it isn't nearly as intrusive as personal bankruptcy, the Insolvency Practitioner will still seek proof of income and expenditure every 12 months. Should someone earn overtime, 50% of this should go towards the agreement. This would also apply in relation to any additional money gained from a promotion or pay increase.

An Individual Voluntary Arrangement Lasts for 5 Years

Whilst the majority of people are discharged from serious debt after 1 year following personal bankruptcy, an IVA lasts for a minimum of 5 years. In certain instances, it can last for 6 years. This is a long time and an awful lot can happen in this timeframe.

Should the insolvent lose their job, experience life problems or further financial difficulties during the term of the agreement, the debtor can still be declared bankrupt if monthly payments aren't maintained. It doesn't matter if this is after a 6 months or 4 years.

Homeowners with personal debts of in excess of £15,000 may be best suited by an Individual Voluntary Arrangement. It isn't suitable for everyone. Personal bankruptcy may provide negative publicity, but it could allow someone to become debt-free a lot sooner. Always seek professional advice from a qualified debt counsellor before proceeding with any debt solution.

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