Debt-free with an IVA

14 September 2009

If you`re struggling with debts you simply can`t afford to repay, you may be able to clear them once and for all with an IVA (Individual Voluntary Arrangement).

An IVA is not an `easy option` or a quick solution to your money worries - but it has given many thousands of people a way to become debt-free without entering bankruptcy. In the second quarter (April-June) of 2009 alone, 12,225 people in England and Wales entered into an IVA.

Debt-free with an IVA - how does it work?

Depending on your circumstances, an IVA could be the best way for you to clear your debts without resorting to bankruptcy. If you speak to an expert and they agree that an IVA could be right for you, just be aware that you won`t be debt-free overnight - in most cases, an IVA takes five years.

Basically, an IVA is a legally binding agreement between you and your creditors. In most cases, it would work like this:

You would commit to:

• making regular payments for five years,
• releasing equity from your home (if you`re a homeowner) towards the end of the IVA, and
• contributing a portion of any extra money you earn (overtime, bonuses, etc.) while your IVA is in progress.

In return, your creditors would:

• allow you to make reduced payments,
• agree not to take / pursue legal action against you, and
• write off the debt you can`t afford to repay - once you`ve successfully completed your side of the agreement.

How do I know if an IVA is right for me?

You can`t be sure without talking to a debt expert, but in general, IVAs may be suitable for people who:

1. Have a significant amount of unsecured debt,
2. Can`t afford the monthly payments,
3. Can`t repay their debt in a reasonable time, and
4. Don`t want to declare themselves bankrupt.

If that sounds like you, you should talk to a debt adviser. If it looks like an IVA is the best way for you to tackle your debts, your IP (Insolvency Practitioner) will work with you to draw up an IVA Proposal, which lays down how you and your IP think the IVA could work.

For your IVA to start, this IVA Proposal must then be accepted by enough of your creditors: creditors who collectively `own` 75% of your unsecured debt must vote to accept your proposal. (Note that creditors who don`t vote for or against it won`t be included in this calculation.)

If it`s accepted by enough of your creditors, your IVA will become legally binding on everyone, including any creditors who voted against it, or didn`t vote at all.

You`ll know exactly how long your IVA will last, and what you`ll have to pay throughout. As long as you stick to your side of the bargain, your outstanding debt will be written off at the end of the IVA - and you will be debt-free.

Note that an IVA will appear on your credit record and stay there for six years, affecting the cost and/or availability of credit for that time.

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