Individual Voluntary Arrangements A Flexible Repayment Scheme

This article takes an in depth look at IVA's and how they can help you when you are struggling with debt.

If you want the flexibility of arranging a repayment schedule for your debts and the legal protection of a government-sanctioned scheme, an Individual Voluntary Arrangement (IVA) represents a viable debt relief option.  However, IVAs carry risks along with their potential benefits, not the least of which is that they can (and sometimes do) fail. When such failures occur, debtors are often left with no alternative but to declare bankruptcy.

Individual Voluntary Arrangements Defined

IVAs were established as a legally binding debt relief alternative to bankruptcy for individuals who have substantial debt load but who also have sufficient disposable income to pay a substantial portion of their debts.  The general consensus is that IVAs are not recommended unless you have substantial debts - recommended minimum debt amounts range from £10,000 to £12,000. Through the establishment of an IVA, debtors set up a repayment plan with their creditors. At the end of the repayment plan (usually five years) the debtor's remaining debts are discharged.

How Individual Voluntary Arrangements Work

To establish an IVA, you must first meet with an insolvency practitioner (IP) who serves as an intermediary between you and your creditors. The IP negotiates with your creditors to establish an acceptable repayment plan that you can actually afford to maintain. Once the plan is established, you make a single payment to the IP each month, and he or she allocates the funds from each payment to your creditors. This process continues until the IVA has been discharged, unless you default on the agreement.

Advantages of Individual Voluntary Arrangements

The major advantages of IVAs are legal. Once you enter into an IVA, as long as you adhere to the agreed terms, creditors cannot pursue collection attempts against you. You can also propose an IVA as a means to prevent one or more creditors from forcing you into a full-fledged bankruptcy.

With an IVA, unlike with bankruptcy, you are often able to maintain many of your personal possessions, including your house because an IVA does not require the liquidation of your property. You may also retain your bank account because you do not need to inform your bank that you have entered into an IVA. By contrast, your bank may close your account if you go into bankruptcy. If so, you may find it difficult to obtain a new bank account, even when your bankruptcy has been fully discharged. An IVA is also advisable for police officers, active duty military personnel, business owners and others who may lose their jobs or livelihoods if they declare bankruptcy.

Disadvantages of Individual Voluntary Arrangements

Like bankruptcies, IVA agreements are listed on the Individual Insolvency Register, so there is an adverse effect on your credit report. Establishing and executing an IVA can be expensive. Fees charged by an IP can range to £5,000 or higher.  In addition, because the terms for IVAs is so long, you may very well wind up paying more to repay your debts through an IVA than you would have if you had sought debt relief through bankruptcy.  If you are referred to an IP after filing for bankruptcy, you must pay £335, which will be withdrawn from the fees you paid to file your bankruptcy petition. There is no legal aid available to assist with the costs of establishing an IVA.

If you are a solicitor or an accountant, you may have to give up your practice if you enter into an IVA. Even if you are not barred from your profession, you may only be allowed to practice under strict limitations. Business owners may find it difficult to remain in operation because access to credit is restricted during an IVA, and many creditors will hesitate to lend to someone who has recently completed an IVA.

Although your assets are not liquidated during the IVA process, you may need to refinance your home in order to access the equity to use for your IVA repayment plan. This is because your home is considered an asset in establishing the repayment terms for your IVA. If you refuse to refinance your home, your IVA may be extended for an additional year, bringing the total repayment term to six years. Likewise, if your car is expensive, you may be forced to sell it in order to pay the proceeds into your IVA.

Sam Jones the author and industry expert when it comes to debt management companies, recommends to his readers who are struggling financially to visit http://www.uswitch.com/debt-help/debt-relief-orders-dro/ for the latest information on debt and IVA's.

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