IVA – Pros and Cons
An IVA (Individual Voluntary Arrangement) can make a huge difference to your financial health and see you free of debt – but, it’s a significant commitment and therefore, not one that should be entered into without all the information.
Being free from debt, having a large chunk of your debt written off and reducing the monthly amount you pay towards your debt all sound like attractive prospects – but it’s important to understand both sides of the story.
It’s always important to speak to a reputable company who can offer professional advice, and while this list isn’t a substitute for that, it will give you a great idea about some of the pros and cons associated with IVAs.
- No need to talk to your creditors
If you’re in debt, you’ll be well aware that your creditors can be quite relentless when it comes to chasing you for payment. When you have an IVA, this stops entirely. Your insolvency practitioner and their team will communicate with your creditors on your behalf, helping to remove a huge stress from your life.
- Not all creditors need to agree
The insolvency practitioner you work with will seek an arrangement that satisfies all the creditors you owe money to – but not all of them have to agree for it to move forward. In fact, only 75% need to agree, so even if some would like to recoup more from you, as long as most are happy with the arrangement that’s put forward on your behalf, your IVA will proceed anyway.
- A large portion of debt could be written off
When your IVA comes to an end, any of the debt that hasn’t been paid off with your monthly payments is written off – no matter how large or small. This means that you’ll never be asked to pay more than you can afford – a great way to get back on your feet if you’ve struggled financially.
- Interest, charges and further action is stopped
Having interest, additional charges and the stress (and cost) of bailiff, collections and court action can really make the amount you owe spiral out of control. When you have an IVA, all these charges and additional costs are frozen, meaning the amount you owe only ever gets smaller as you pay – rather than continuing to grow, as can be the case when you’re trying to manage your debt yourself.
- You’ll be debt free after a set period of time
An IVA is set up to run for a set period of time – and it won’t run any longer. This will usually be for 5 years – meaning you’ll be debt free in 60 months. Any debt that remains after this period will be written off and your business with your creditors will be done, allowing you to rebuild your finances and live a debt free life.
- It’s possible to take a break from payments
While it’s absolutely vital you don’t do this without authorisation, it is possible to take a break from your payments – which is especially useful if you have an unexpected cost that you can’t otherwise cover. Although you’ll have to speak to your insolvency practitioner to see what they advise as being possible, you might be able to miss payments for 2 months or more, on the understanding that your IVA will be extended at the end of the term to ensure the full amount of payments are met.
- You’ll damage your credit rating
An IVA will show on your credit report for the duration of the time you have it. Although it will also be part of your agreement with the insolvency practitioner who arranges your IVA, this will stop you getting any unsecured credit products throughout the term of the IVA.
- You might have to sell some assets
Your creditors don’t expect you to give anything up that would mean you couldn’t cope with day-to-day living – but if you have assets above and beyond that, they might expect you to part with them to help pay as much as you can toward the amount you owe.
- You can only include unsecured debt
IVAs are usually only set up for unsecured debt, so debt that is secured against your home or other property won’t be included. This means items that you lease, pay for with a hire purchase agreement, or your mortgage won’t be included. However, talking to your insolvency practitioner about these things is important, as they may be able to help you pay amount that allows for essential outgoings.
- Your pension could be affected
Your creditors and insolvency practitioner will see additional payments toward your pension as being non-essential out-goings – and will therefore insist that you stop those payments throughout the term of your IVA. This can impact your retirement plans and will need to be considered when your IVA is complete.
- You might have to remortgage
If you’ve got a substantial amount of money tied up in your property you may be expected to release some of that equity to help make payments toward your IVA. Even if you don’t have equity at the beginning of your agreement, if this changes over the course of the IVA, releasing equity might be revisited as your arrangement is assessed.
- Insolvency practitioners charge for their service
The insolvency practitioner you choose will charge for the work they do creating and administering your IVA – as well as the correspondence with your creditors that they’ll do on your behalf. This amount varies – but many will simply build this fee into the monthly payment you make.
- You can’t miss payments unexpectedly
It’s absolutely vital that you make your IVA payment each month – if you don’t, your creditors will consider your IVA to have failed and they can then take further action against you, including making moves to start bankruptcy proceedings. This isn’t to say you can’t make an arrangement with your insolvency practitioner if you come up against an unexpected cost, but you must discuss and have this agreed prior to missing or reducing a payment.