What are the alternatives to an IVA?

22 May 2009

If you are struggling with unmanageable debt, then an IVA (Individual Voluntary Arrangement) is one debt solution that could help you become debt-free.

Since their introduction in 1986, IVAs have helped many people avoid bankruptcy. But as with any debt solution, you should always consider the alternatives before making a final decision.

Debt management plan

Even if you feel that you are unable to repay your debts in full, your debt adviser may be able to help you work out repayment terms that would enable you to repay your debts at a pace that you can manage.

Unlike an IVA (which is a form of insolvency, after all), a debt management plan is an informal arrangement between you and your creditors in which you will make reduced monthly payments towards your debts. It may also be possible to negotiate a freeze or reduction in interest and other charges that could prevent your debts from growing any bigger.

There is no set `time limit` on a debt management plan. In theory, this means that your debt repayments could be spread out over ten years or more. However, it may well be that the longer you need to repay your debts, the less likely your lenders are to accept the terms, in which case you may wish to consider an alternative debt solution.

Bankruptcy

Although bankruptcy is a last resort for some people when it comes to getting out of debt, there are some situations in which bankruptcy might be the best option.

If you are not a homeowner, you technically have less to lose from bankruptcy than somebody who does own their home, since you have fewer valuable assets (or even none at all) to be sold. Along with the fact that bankruptcy proceedings are usually over within a year - as opposed to an IVA`s five years - some people see bankruptcy as a preferable way out of debt, given their circumstances.

Also, if you are on a low income, or if your income changes a lot, then it`s unlikely that you will be able to keep up with the regular monthly payments of an IVA. In this case, bankruptcy might be a more sensible option.

However, you will still have to consider the other effects bankruptcy may have on your life - for example, whether you will lose your job (some companies and professions will not employ people who have been made bankrupt, although this is rare).

What other debt solutions are there?

The other `main` debt solution is a debt consolidation loan, in which you will take out a new loan to cover all your existing debts, effectively `consolidating` your multiple debts into one relatively easy-to-manage monthly payment.

You may also be able to reduce your monthly outgoings by spreading out your repayments (although this may mean paying more interest in total than if you had chosen a shorter repayment period), and in some cases you may pay a lower interest rate than on your existing debts, particularly if you consolidate high-interest debts such as credit cards.

However, if your debts have become unmanageable, a debt consolidation loan may not be the best option, since it is essentially another debt. You should be certain that you can afford the regular repayments before taking out a debt consolidation loan.

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