Is an IVA the right choice?

When it comes to tackling unmanageable debts, finding the right debt solution is an important decision. You’ll have to discuss all your options with a debt adviser before you can make a final decision, but here’s a quick introduction to IVAs to help you decide if an IVA could be the right choice for you.

Explaining an IVA

An IVA, also known as an Individual Voluntary Arrangement, is a formal arrangement between you and your unsecured lenders. It’s designed to write off any unsecured debt you can’t afford to repay, but first of all you’ll have to pay as much as you can into the IVA for an agreed period of time – usually five years.

This usually involves making monthly payments, which will be based on what you can afford after you’ve covered all your other essential costs (things like your mortgage/rent, bills and essential groceries). If your available income changes, your payments may be able to change too, although a significant change in your circumstances may call for a re-assessment of whether your IVA is still suitable.

As long as you keep up with your payments and stick to the terms of the IVA, you will be legally protected against any further action regarding your debts. If you miss multiple payments and the IVA ends up failing, however, your lenders are then entitled to take alternative action to try to recover their money.

Only on successful completion of the IVA will the unsecured debt you haven’t repaid be written off.

Although an IVA can really help, it will impact on your credit rating, and could require you to release equity from your home if you’re a homeowner.

How do I know if it’s right for me?

Firstly, it’s important to understand that an IVA will only be an option if you genuinely can’t afford to repay your debts within a reasonable period of time, but can (in most cases) still commit to regular payments that add up to what (enough of) your unsecured lenders consider a reasonable proportion of the money you owe them. Your lenders simply won’t accept an IVA if this isn’t the case.

Even if you do meet these criteria, there may be other more suitable options. For example, bankruptcy holds some advantages over an IVA, in that it is usually over more quickly and doesn’t always require regular payments. There are a number of options for tackling unmanageable debts, and you should always seek the advice of an expert before deciding on what you think is the right one for you.

This IVA FAQ is really useful if you are looking for more information.

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