Is an IVA the Best Option for You?

Individual Voluntary Arrangement plan was introduced under the Insolvency Act of 1986 as an alternative to bankruptcy. If the creditors agree to the debtor’s proposal- voting in favour of at least 75% of the debt value, then the interest and other charges are frozen. At the time, people were struggling with debts caused by failed business ventures and the arrangement only applied to business people. Over time, however, the plan has become common among people with high consumer debts and who are looking for ways to protect their assets from enforcement action.

Kinds of Debts Covered by an Individual Voluntary Arrangement

Generally, the most suitable people for an IVA are those with regular sources of income and those who can make lump sum payments for the debt. The plan is restrictive for specific kinds of loans; the most common being personal loans, credit cards, payday loans, overdrafts, as well as gas and electric arrears. However secured debts like secured loans and mortgages and other debts like fines, student loans, fines and child support are not eligible for the arrangement.

How Much Debt is Written Off?

The essence of the plan is to allow the debtor to repay the debt in amounts he or she can actually afford every month within the five-year period. The amount of debt written off is based on the entire debt and the amount the debtor can repay over the five years.

Implications of the Arrangement

 

  • People applying for Individual Voluntary Arrangement should carefully consider the implications of the agreement on their personal, financial and professional life:

 

    • Your credit rating is affected for six years from the date you agree to the arrangements
    • Missed payments lead to an extension to make up for the arrears
    • You may need to keep a budget for the entire term of the Individual Voluntary Arrangement- 60-72 months
    • Additional income is partially channelled to Individual Voluntary Arrangement payments
    • You are required to declare additional assets acquired after the Individual Voluntary Arrangement has been approved
    • You Individual Voluntary Arrangement is recorded on the Insolvency Register usually maintained by the Insolvency Service. the register is available for viewing by the general public
    • You are not allowed to take out new debts worth over £ 500 during the period

How the Plan Affects your Home

An Individual Voluntary Arrangement prevents you from losing valuable assets like your home. However, depending on the amount of equity in your home, you may be required to remortgage 6 months towards the end of the plan to release the equity. It is based on the amount paid into your plan. Homeowners who remortgage should not increase the value of the mortgage to more than 85% of the value of the property.

What Happens to Missed Payments

Where you can’t make payments to Individual Voluntary Arrangements, you should inform your Insolvency Practitioner as soon as possible. The plan is adjusted to allow a short payment break in case of an emergency. The officer may also agree to change the monthly payments if the change is small. Where the debtor needs a long payment break, the IP is compelled to contact the creditors to approve the changes.

The above text should provide enough insight into Individual Voluntary Arrangements and how they affect the debtor. Note that only people with £6,000 or more of unsecured debt are eligible. They must also have two or more creditors and be England or Wales residents.

 

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