5 things you should know if you choose an IVA over a bankruptcy

An IVA or Individual Voluntary Arrangement and is often suggested to people as an alternative to bankruptcy in certain circumstances. If a debt management company ever suggests an IVA to you, there are a few things you should be made aware of:

1. Your debts can be written off after 5 years

For an IVA, 60 monthly payments are usually proposed and once this is complete you will be free of debt, although if you are unable to release any equity in your property you may have to make 12 further payments. You risk your IVA failing if you do not make all of your payments; your debts will not be written off and interest charges would probably be re-applied.

2. An IVA has to be nominated and supervised by a licensed Insolvency Practitioner

A good Insolvency Practitioner (IP) should be able to demonstrate to your creditors what you can afford to pay, and then negotiate an agreement from them in order to reduce the amount owed by the end of the term of the IVA.  Creditors aren’t obliged to accept an IVA proposal, but a good proposal should be able to demonstrate that your IVA is sustainable over 5 years; if your creditors are confident that you’re able to keep to your IVA payment schedule for 5 years, then there’s a good chance your IVA proposal will be accepted.

3. Homeowners need to remortgage in the 4th year

You will be encouraged to remortgage in the fourth year of the plan.  By this stage, creditors will have agreed to write off a significant proportion of your debts upon completion of the IVA, so they will expect you to release part of your property’s equity, assuming you have a significant amount of equity in your property.  If you cannot get a remortgage then you will just be asked to make a further 12 payments into the IVA.

4. All IVAs have fees

Some debt management companies charge fees upfront, sometimes even if the IVA is not approved. Find this out before you deal with any IVA provider. Others companies only take payment out of the payments that you make into the plan.  Fees will vary according to the level of debt.  Some free debt companies can negotiate IVA plans that are structured so that the creditors agree to pay the fees.

5. The IVA affects your credit score for six years

That is, six years from the start of the plan. Therefore if your IVA lasts for five years, it will only be on your file for one further year.  As long as you keep up with your payments, you should be free of debt after 5 years and have a clean credit record one year after that.

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