Are IVAs too Good to be True, or do They Really Help?

An Individual Voluntary Agreement (IVA) comes with many benefits when it comes to solving debt trouble. For one, you will have a considerable sum of your debt written off. Another notable plus is that – if you are a home owner – you will have your home protected by law from creditors seeking to exploit that.

Many consumers ask the question: “what is an IVA?” Surprisingly, there are a number of people who are simply unaware that they have this option. We take a look at the common pros and cons below, in order to build a solid picture of what entails.

The pros of an IVA:

  • Affordable monthly payments to creditors
  • There is no requirement to give up your house. There may be a requirement to release some equity, however
  • Interest and charges are frozen, which means no further debt accumulates
  • 50% to 60% of your original debt will be written off, if it is deemed unaffordable
  • Creditors cannot pursue you once the agreement is in place, meaning that they cannot push for bankruptcy
  • It helps you get back to a level of financial certainty, removing the stresses generally associated with being in debt

The cons of an IVA:

  • It is a strict agreement which requires you to keep up payments for up to five years
  • Your details will be recorded on the Insolvency Register
  • Your credit file will also show details of the IVA for six years
  • Your ability to get credit will be affected, as your credit rating will be affected by you entering into the agreement. Your chances of obtaining loans, credit cards, and mobile phone contracts may be considerably lowered
  • If your IVA is not successful, any fees paid will not be returned to you
  • If you work in law or finance, there is a chance that you may not be allowed to practice as part of your IVA

If your IVA Fails

Providing your IVA has started – and you have demonstrated willingness to see it through – there may be some chance of applying for lower payment terms. This is never guaranteed, however, and if you are unable to stick with the original agreement if you have been rejected, then you may be required to terminate the agreement. The danger of doing this within the first 18 months is that you may be back to where you started. As payments are targeted at fees and not debt in this period, it is important not know this.

Those who are homeowners and have properties with equity should also be made aware that, should the IVA fail, you may be forced to register for bankruptcy which can lead to you releasing equity from your house.

In this case, it is crucial not to enter into an IVA unless you are absolutely confident that you have the means to make payments. The aim of an IVA is to get you out of debt over a slow period of time – make sure, that if you enter into one, it stays that way.