A Quick Guide To Ivas

An IVA (Individual Voluntary Arrangement) is a formal, legally binding financial agreement designed to help people with high levels of unsecured debt who can't afford to repay it - but who can (in most cases) commit to making reduced monthly payments on a regular basis throughout the IVA.

In return, creditors will (if the IVA goes ahead) agree to freeze interest, not to take any (further) action against the borrower, and write off any outstanding unsecured debt once the IVA has reached a successful conclusion.

If you are in this situation, then an IVA may be the right debt solution for you. However, before you consider entering one, it is vital you understand exactly how they work:

1. Before you enter an IVA, you will speak to a professional debt adviser about your current financial circumstances. This will establish whether an IVA is the right debt solution for you. If it is - and you decide to go ahead - your Insolvency Practitioner (IP) will help you draw up an IVA proposal, which provides information such as details about your current financial situation and how much each of your creditors is likely to receive should the IVA go ahead.

2. Your IVA proposal will be sent to your creditors, and they will get a chance to review it, then vote for or against it. In order for the IVA to go ahead, creditors accounting for 75% or more of your unsecured debt must vote in favour of it.

3. Your IVA will begin, and you will make regular monthly payments to your IP, who will subsequently distribute this money amongst your creditors as laid down in the IVA proposal. Usually, you will make these payments for a total of 5 years. As an IVA is legally binding, once it has started, your creditors cannot change the terms of the agreement, or withdraw from it - unless you default on your payments or fail to stick to the agreed terms.

4. If you are a homeowner, you may be required to release some of the equity in your home during the final year of your agreement - so you can repay more of your debt.

5. After you have made your last payment, the agreement will come to a successful conclusion and any remaining unsecured debt will be written off. For most people, the final payment will take place in the 60th month. However, this will depend on factors such as the terms of the agreement and your ability to make the payments throughout the IVA. Finally, the IVA will stay on your credit report for one year after it has finished, which might make obtaining further credit harder and/or more expensive.

By: Susan Chalmers

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If you are unsure as to whether an IVA would be suitable for you, you should seek professional debt help.