If you're facing unsecured debts that you can't afford to repay, an IVA (Individual Voluntary Arrangement) could be a way to help you address your short-term problems and your long-term worries.
An IVA is a legally binding debt solution that can allow you to write off the unsecured debt that you can't afford to repay in a reasonable time. What's more, it can allow you to do this in a way that you can realistically afford, which means that you shouldn't run into problems with your other financial commitments while you're tackling your unsecured debts through your IVA.
IVAs - helping in the long term
In the long term, an IVA can write off the debt you can't repay: five years from the time you enter an IVA, you should be debt-free. Basically, if you can commit to paying as much as you can afford for five years (in most cases), your lenders will agree to write off the rest - as long as enough of them accept the proposed terms of the IVA in the first place.
Plus, while your IVA is in progress, all interest on your debts will be frozen. In other words, your debts won't be growing as you try to clear them.
And you can be confident your lenders won't try to make you bankrupt while your IVA is in progress. As long as you stick to your side of the deal, they won't be allowed to take any legal action against you. If they've already started legal action against you, they'll have to put a stop to it.
IVAs - helping in the short term
In the short term, your IVA means you can make payments that you can actually afford. Your monthly payments towards your IVA will be based on your disposable income - the money you have left on a monthly basis after you've accounted for your essential living costs. In other words, you'll know you wouldn't have to 'eat into' the money you need for your mortgage/rent, utility bills, food, petrol, etc. just to stay on top of your unsecured debts. This means you're a lot less likely to lose your home, for example, or have your electricity/gas disconnected (although you may have to release some equity from your property if you're a homeowner).
On a day-to-day basis, many people with serious debt problems dread the sound of the phone or the letterbox. After all, when someone isn't able to repay their debts, lenders want to know what's going on, and when they can expect the money they're owed. For someone in an IVA, this isn't an issue, as lenders aren't allowed to contact them directly - they need to correspond with the IP (the debt expert who's handling the IVA).
Anyway, as long as the borrower is making the agreed payments to the IVA, lenders wouldn't have any reason to contact them. And since those payments would be carefully calculated to be affordable, the borrower should have a good chance of making every payment, in full and on time.
IVAs and your credit rating
Please note that an IVA will have a significant impact on your credit rating. It'll stay on your credit report for one year after your (five-year) IVA comes to a close, making it more difficult and/or more expensive to obtain credit during that time.
