IVAs - what you need to know

12 May 2009

An IVA (Individual Voluntary Arrangement) is a form of insolvency that`s designed to help you reduce the monthly cost of servicing your unsecured debts - and clear them altogether in the foreseeable future.

If you have significant unsecured debts (in most cases, this means over £15,000), an IVA could be right for you - if you can`t afford your monthly payments to your unsecured debts and don`t think you`ll be able to repay them within a reasonable period of time.

What you need to know about IVAs

An IVA offers substantial benefits (see below) but it`s important to understand the drawbacks as well.

IVAs: some drawbacks you should know about

1. An IVA requires real commitment - if you aren`t sure you can make regular payments for (in most cases) five years, you should consider different solutions to your debt problems.
2. If you`re a homeowner, you may have to release some of the equity in your property in the 54th month of your IVA (halfway through the 5th year).
3. You may be required to sell your vehicle (and buy a cheaper one) or other valuable assets.
4. If you don`t stick to the terms of the IVA, your creditors may try to make you bankrupt.
5. An IVA is a form of insolvency that will stay on your credit report for 6 years after it starts - so you may find it harder to obtain credit during the first year after it finishes.

IVAs: some benefits you should know about

1. An IVA will bring your monthly payments down to an affordable level.
2. Your unsecured creditors will write off any outstanding debt when the IVA comes to a successful conclusion.
3. An IVA is a legally binding agreement - your creditors won`t be able to change their minds once it`s started (unless you fail to maintain your side of the agreement).
4. You`ll know exactly when you`ll be debt-free.
5. An IVA can write off a portion of your debts without imposing the consequences of bankruptcy.

IVAs: what are the alternatives?

An IVA isn`t right for everyone. Depending on your circumstances, you may be better off finding out more about debt management or bankruptcy. To discuss your situation with a professional debt adviser, call freephone 0800 161 3516.

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