One of the things that can make debt feel particularly scary is the feeling that there’s nothing you can do about it. In almost all cases, though, there are options available to help put you back in control.
The right option for you will depend on a number of factors including the amount of debt that you have and what type of debt it is, so it is worth looking into a range of different solutions: one such solution that you may wish to consider is an Individual Voluntary Arrangement (IVA).
So what exactly is an IVA?
An IVA is a form of insolvency which involves sitting down with an insolvency practitioner to come up with a repayment plan. Your creditors are then asked to agree to the plan and, if they do, you will begin to repay a set amount each month for a period of usually 5 years. It is a legal agreement, so once you and your creditors have both agreed to it, you both have to stick to the terms.
What type of debts will it cover?
Most types of debt can technically be covered by an IVA, excluding maintenance and child support arrears and magistrates’ court fines. Typically, though, it would be used for so-called non-priority debts such as credit cards, bank loans and overdrafts, catalogues, and personal loans.
Your creditors are unlikely to agree to the arrangement unless your debts are £10,000 or more. Additionally, IVAs are considered most suitable for people who have at least 3 different debts and 2 different creditors.
How much will it cost me?
An IVA can cost around £5,000, which is the typical fee that you would expect to pay to your insolvency practitioner. There is no legal aid available.
How will an IVA affect my future?
In the short term, an IVA will impact your ability to get credit – and while you have the IVA, you will need written permission from your insolvency practitioner for credit of more than £500. After it is completed, it will stay on your credit record for 6 years, and may affect the outcome of credit applications that you make.
It should not affect your job or possessions. If you are a homeowner, you should discuss this with your insolvency practitioner. One thing you should be aware of is the ‘windfall’ clause. In most IVAs, this states that if you come into a large sum of money – for instance through inheritance or a bonus at work – then you will have to pay it into the IVA.
Is an IVA right for me?
This is an important decision to make, and it is important to take professional financial advice. We have outlined some of the factors that you should consider, such as the types of debt that are most suitable for an IVA and the amount that it may cost you if you choose to go ahead. Crucially, you should only consider going ahead with an IVA if you have enough income to cover the payments.
Other options that you may wish to look into include bankruptcy, a debt relief order or a debt management plan, all of which are designed to help with particular situations. Most importantly, if you find yourself struggling with debt remember that there are options out there – and once you take action, you can start to put your worries behind you.