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IVA Pros & Cons

Learn the pros and cons of entering into an IVA.

Right now, many of us are struggling financially. More people are borrowing money, such as taking out a loan or extending an overdraft, and sometimes this is done without a plan as to how and when they’ll be able to pay it back. 

It’s worth mentioning that if managed correctly, certain good things can come out of being in debt, such as helping to improve a credit score; however, if appropriate budgeting isn’t properly established and maintained, then debt can quickly become a problem. Heavy debt can weigh us down, which can then start to put a strain on our mental health.

Thankfully, there are many debt solutions available to help people get their lives back on track financially. One of these debt solutions is an IVA (Individual Voluntary Arrangement).

If debt has become a big burden for you and you’re seeking a debt solution to regain financial control, then, depending on your circumstances, an IVA might be what you need. 

An IVA is a legal agreement with your creditors to pay back some or all of your debt. The IVA is arranged on your behalf by a qualified person, called your IP (Insolvency Practitioner). Your IP will arrange a payment plan for you to repay your creditors over a period of time (typically 5 years) through monthly payments, and, once approved, your creditors will have to stick to this agreement.

There are many pros and cons when it comes to an IVA which you should be aware of. We’ve listed some of these pros and cons below to help assist you in deciding whether you should apply for an IVA.

What are the IVA Pros & Cons?

– Pros

  • The Advantages of an IVA
  • Write off unaffordable debt
  • You will no longer be harassed by creditors and/or bailiffs for payment
  • Business owners can continue to trade  
  • The payment is tailored to your circumstances
  • It’s available to homeowners
  • It’s a legally binding arrangement
  • Interest and charges will be frozen

– Cons

  • There’s still the risk of bankruptcy if the IVA fails 
  • An IVA could affect employment
  • It will impact credit rating
  • It may affect your chances of getting a mortgage
  • You have to follow a strict budget

To gain a better understanding of the pros and cons to having an IVA, we recommend that you do some research before deciding if it’s the right debt solution for you. However, we have gone a little further in depth below to hopefully assist you with your decision.

IVA Pros

Write off unaffordable debt

Your IP (Insolvency Practitioner) will ensure that you only pay your creditors what you can afford by taking into account your income and expenditure. By the end of the IVA, any money that is still outstanding to your creditors will be written off. 

You will no longer be harassed by creditors and/or bailiffs

Your IP will deal with creditors on your behalf. As long as you stick to your IVA terms, then creditors are also not allowed to take legal action against you, such as sending bailiffs. It is worth noting that it usually takes around four weeks for an IVA to be set up, so during this time, you could still be contacted by people trying to collect the debt.

Business owners can continue to trade

Regardless of whether you are a sole trader or own a limited company, you will still be able to continue trading in an IVA.

The payment is tailored to your circumstances

Throughout the IVA, reviews of your finances are conducted to ensure that your payments remain at an appropriate and affordable level. Your IP will ensure that you are able to pay your monthly bills and that you have enough for essentials before determining a figure that you can afford.

It’s available to homeowners

Unlike Bankruptcy, an IVA can protect your home, meaning that you will not be forced to sell it in order to pay your debts. Your current mortgage will not be affected, so you’ll be able to carry on making your usual payments.

It’s a legally binding arrangement

As an IVA is legally binding, you can be confident that your creditors will stick to the agreed terms. Once the agreement is approved, then your creditors cannot back out of the terms set.

Interest and charges will be frozen

All future interest will be frozen, as long as you keep up with your repayments and follow the terms of your IVA. Your creditors are legally bound to freeze all future interest and charges.

IVA Cons

There’s still the risk of bankruptcy if the IVA fails

An IVA is an alternative debt solution to bankruptcy. However, if you fail to meet the agreed IVA terms, then you can still be made bankrupt.

An IVA could affect employment

Depending on your job, or the job you are applying for (for example, if you work/would like to work in finance), then an IVA could affect this position. It is important that you check the terms of your contract before entering an arrangement.

It will impact your credit rating

As an IVA will be registered on your credit file, it will impact your credit rating. An IVA will usually remain on your credit file for six years from the date that it is approved. Credit reference agencies provide information to lenders through a Credit report.

It may affect your chances of getting a mortgage

You will struggle to get a mortgage until an IVA has been removed from your credit file. It is possible to get a mortgage after it has been removed, but lenders can ask whether you have ever had an IVA, which could affect their decision to lend to you. An IVA usually lasts around five years.

You have to follow a strict budget

Your IP will assess your income & expenditure regularly to ensure you are following a realistic budget. There are certain IVA spending restrictions which are in place to help you budget, and ultimately pay off your debt. 

When in an IVA, it is advisable that you do not add more credit – the likelihood of being accepted for more credit is very low – but if you do feel that you need to apply for credit, then you need to speak to your IP first as they will need to consent to any borrowing over £500.

Now that you understand some of the IVA advantages and disadvantages, you can hopefully make an informed decision on whether or not an IVA is the right debt solution for you.

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