IVA UK Advice: Good Solutions to Get Out of Debt in the UK

Struggling with debt is now a common occurrence in the UK. You are not alone with the feelings of stress and despair it can cause.

When debts become overwhelming, it is common for thoughts of bankruptcy to be seen as the only solution. However, there is an alternative which is far less restrictive but can be just as beneficial for the debtor, the Individual Voluntary Arrangement.

An IVA, which was established by the Insolvency Act 1986, is a legal contract between you and your creditors. It is a legally binding arrangement supervised by a Licensed Insolvency Practitioner, the purpose of which is to enable you to reach a compromise with your creditors and avoid the consequences of bankruptcy. Insolvency Practitioners are accountants and they will present your IVA case to the Creditors.

The IVA enables you to cut your debts to an affordable level and clear them over a fixed period. The compromise should offer a larger repayment towards your debt than could otherwise be expected were you to be made bankrupt.

You can even take out a fresh mortgage while in an IVA. What's more, it is a totally private arrangement nobody needs to know about it apart from you, your advisors and your creditors (people you owe money to). An IVA ensures that your home is protected and your job is not at risk.

You make one single manageable monthly payment, based on your budget, for 3-5 years. After that the remaining debt is wiped clean, leaving you completely debt-free. This means that an IVA can write off up to 75% of your debts.

However, under the terms of the agreement you undertake to contribute as much as possible within your budget. So in reality, an IVA presents an opportunity for you to pay whatever as you can in a manageable way in a way you can afford.

The advantages and disadvantages of an IVA compared with other debt solutions are particular to a debtor's individual circumstances and professional advice should be sought to decide on the best option.

Advantages

You only pay back a percentage of your debts. If you follow the agreed terms, you will be debt free in 5 years time. Up to 75% of your debt may be written off.

This is a legally binding solution so no further interest or charges can be added to the debt. Enforced by law creditors can't change their mind once they've agreed. You also get protection against possible court action.

Agreed monthly payment plans will remain fixed unless your income level dramatically increases.

It is a private agreement and only you, your advisor and your creditors need know about it. There is no publicity in the local papers, as is the case for bankruptcy.

You can continue to practice as a professional person (i.e. accountant, solicitor, doctor etc) or as a director of a company and can hold public office, as an IVA does not affect your professional status.

You can open a regular bank account, without an overdraft facility and have no/fewer credit restrictions than if you go bankrupt.

You can safeguard your property, as the proposals can be made flexible to suit personal circumstances.

Disadvantages

If you have equity in your house, an endowment policy linked to your mortgage, or valuable assets you may be required to release them in to pay your creditors. (This is usually done near the end of the arrangement). However this is preferable to repossession and enables you to safeguard and retain your home.

Normally, an IVA cannot be used if your total debts are under 15,000.

You must be able to afford to make an offer of repayment to your creditors. Generally you need to be able to afford monthly payments of 200 or more.

If you fail to keep up the payments set out in the agreement, your creditors WILL be able to take other action against you, which could result in bankruptcy, and your home could still be at risk if not specifically excluded from your IVA proposals

In their bargain to allow you to avoid bankruptcy, IVAs are expected to be for a longer period than bankruptcy (ie 5 years). People who go bankrupt can be discharged from bankruptcy within between 1 and 3 years. So it takes longer to be debt-free.

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