IVA Pros and Cons

IVAs – The Pros and Cons

There are both advantages and disadvantages to entering into an IVA – it is advisable to fully research all the facts before making a final decision. Here are some points to consider:

Pros

Debt Free Within 5 to 6 Years

An IVA continues for a fixed period of time, between 5 and 6 years, and up to 75% of your debt can be written off when the agreement term is up. Your agreement will state clearly, exactly when you will be free from debt.

Letters and Phone-calls Demanding Payment Cease

Your creditors are required by law to cease demanding money once an agreement has been agreed. Creditors who did not vote or who voted against the agreement are still bound by the terms by law.

All Interest and Late Payment Charges are Frozen

Once an Individual voluntary arrangement is in place, no further charges can be added to the accounts covered by your agreement – BY LAW.

Secures Your Home

An Individual Voluntary Arrangement can act as a safeguard to losing your home.

Protection from Court Action

Providing you adhere to the agreed terms of your arrangement, no further legal action can be taken against you.

Confidential

An Individual Voluntary Arrangement is a private agreement, so your friends and family will not need to know. It will, however, be added to the national insolvency register, which is available on-line.

There are no professional disqualifications

You can continue to work as normal in any profession – including the financial sector (FSA), HM Armed Forces and Police Force, which would not have been possible with bankruptcy. You can also continue to trade as a business owner, be a company director, or hold public office positions.

One Monthly Payment

You only pay what you can afford – a monthly amount pre-agreed between you and your creditors before entering the IVA. (This generally must be a minimum of £200)

Cons

Minimum Level of Debt

You will not usually be able to undertake one if your total unsecured debt is less than £15,000. You must also be able to afford a minimum monthly repayment of £200.

Strict Financial Regime for Minimum of Five Years

You will need to meet the repayments for the duration of your term. Failure to do so will mean failure of your arrangement, and you will then be required to repay your full debt amount – which will lead to involuntary bankruptcy. It may be possible miss payments for extreme circumstances, but this will extend the period of your IVA. Remember that your Insolvency Practitioner will monitor your income – if you begin to earn more, then you will be required to pay more.

No Unsecured Borrowing

You will not be permitted to use your store or credit cards for the duration, although you may use prepaid cards. It may be possible to change an existing mortgage or take a new one while you are in an IVA.

Longer than Bankruptcy

The period is far longer than bankruptcy. They generally last 5 years – sometimes 6 in around 5% of cases – whereas bankruptcy lasts for a maximum of 1 year, and in most cases is significantly less.

Damaged Credit Rating

You will be unable to borrow for the duration and it may also be difficult to obtain credit for the year following your release from the agreement. An IVA will show up on your credit report for up to 6 years.

Possible Release of Home Equity

You may still have to release some or all of any equity you may have on your property or other significant assets, as part of your agreement. N.B An IVA cannot guarantee the protection of your home if creditors insist that the assets are still vulnerable.

You Pay Back Far More Than With Bankruptcy

In an IVA you will pay back a significant amount of your debt (e.g. 40%-50%) whereas with bankruptcy you will pay back a minimum amount – this could be as little as nothing.

Includes All Creditors

You are required to include all creditors, and it is not permitted to make separate arrangements with each – as you can with a Debt Management Plan. Also, if you leave some creditors out then they can still pursue you for money.

An IVA is best suited to consumers owning significant assets – such as a property or business. If you do NOT have any assets, you may be better suited to bankruptcy.

An Individual Voluntary Arrangement is legally binding.

It is a criminal offence to lie on your application for an Individual Voluntary Arrangement.

Back to Top