You may have seen the adverts that go something like this: “Clear 75% of your debts without filing for bankruptcy!”
Sounds too good to be true? It is.
An IVA can only be granted if 75% of your creditors agree to it, but that doesn’t mean it gets cleared instantly. You’ll still be making payments during the 5 years that the IVA is in effect.
Despite that, IVAs are an ideal option for some people reeling from large amounts of debt (£12,000+), have worked hard to try and pay it off, but are struggling to make ends meet and take care of their debt. Put another way, an IVA is similar to bankruptcy (they’re both forms of insolvency), although an IVA protects your assets from creditors. An IVA should only be considered if you’re in, or are fast approaching a desperate situation.
What is an IVA, Exactly?
IVA is short for Individual Voluntary Agreement. Much like bankruptcy, it affects your credit file, which affects your ability to obtain credit or loans in the future (although not permanently – for about 7 years). However, it does have a number of advantages over bankruptcy (as you’ll soon see).
Simply put, an IVA is a deal you make with your creditors to lump your debt together and make flat monthly payments. How much you pay each month is dependent on how much you make and how much you owe. However, many IVAs have a requirement that you pay least least £200 per month. This may well be significantly less than you’re paying now. If you don’t think you could afford that amount, discussing your budget with an Insolvency Practitioner is the best course of action as they can determine what reasonable amount can be accepted. And if making any repayments at all is completely out of the question, then consider filing for bankruptcy instead.
Unlike a bankruptcy, where you may lose your assets (car, house), an IVA lets you keep your prized possessions. It is still recommended that you sell some of your things in order to help pay off your debt.
How to Get an IVA
If you’re truly unable to pay your debts and pay the bills, own a property that has equity, own land or an expensive car (more than £2,500) then you’ll definitely want to consider an IVA as opposed to bankruptcy.
The first step is to talk to a financial expert who can help see what’s going on. You’d be surprised what a breath of fresh air a few minutes chatting with a financial consultant can be. If you’re like most people in debt, your emotions are riding high. You may feel stressed, irritable and even depressed.
Getting professional help in the form of a financial advisor is a must as you may be able to eliminate your debt without the help of an IVA. But the only way to know is to meet with a pro.
You also need to count your debt and see exactly how much you owe. IVAs aren’t available to anyone with debt. In general you need to be carrying £12,000 or more in debt to become eligible. The fastest, easiest and most reliable way to figure out how much you owe is to obtain an up-to-date credit report. Your report will give you an itemised list of what you owe, along with an official total. If your total exceeds £12,000, then you may qualify for an IVA.
Your next step is to make it official. Like bankruptcy, and IVA is a legal agreement and therefore requires the courts. In every case you will be connected with an Insolvency Practitioner that specialises in IVAs. Not only do they get the ball rolling but they also act as a liaison between you and your creditors.
However, there’s one important wrinkle to be made aware of that’s unique to IVAs: the creditors have a say in the matter. In particular, whoever you owe at least 75% of the debt to can more or less veto the measure, which can force you into bankruptcy. That’s why it’s crucial to find an Insolvency Practitioner that you can trust.
Once everything is complete you’ll likely find paying your debts becomes much easier. Because creditors aren’t allowed to get in touch with you during the IVA agreement, you’ll be free of threatening letters and phone calls. And because your payments are in one place, you can be sure that you’re taking the measures required to get out of debt.