What is an IVA?
An IVA (Individual
Voluntary Arrangement) is an official, legally binding agreement
that can help someone with serious debt problems avoid bankruptcy by
paying a proportion of what they owe back to their creditors,
eventually rendering them debt free.
As an IVA is legally
binding, all unsecured debts must be declared, but once the term of
the arrangement has passed, no further claim can be made to any
outstanding monies by the creditors and will be written off.
However, homeowners MAY be requested to explore the option of
releasing any equity in their property at the end of the term,
although the home is never at risk.
How does an IVA work?
An IVA is established and
supervised by a licensed professional, an Insolvency Practitioner
(IP), who presents a formal repayment proposal to an individual’s
creditors, based on what they can afford each month (after
reasonable living expenses have been taken into account).
This amount is calculated
before the agreement is finalised, but can vary over the term of the
arrangement if there are any changes to income/expenditure. This is
reviewed annually throughout the duration of the IVA.
For the IVA to be
approved, the majority of the creditors have to vote in favour of
the arrangement. Once agreed, it is binding to all creditors, not
just those who agreed to it.
An individual is
responsible for making their monthly payments to the IP; the IP will
then ensure funds are distributed to each creditor on a pro rata
basis, based on the amount of outstanding debt.
How long is an IVA for?
Usually an IVA lasts five
years.
Who can benefit from an IVA?
An IVA is an effective way
of helping those in serious financial difficulty, who cannot afford
their repayments on outstanding unsecured debts. As part of the
agreement, all interest and charges are frozen at 0% and additional
payments cannot be demanded from the individual.
Reputable debt consultants
can provide professional advice and will only explore the
possibility of an IVA if no other debt management plan is suitable.
Will an IVA affect a credit score?
An IVA will be recorded on
the individual’s credit report, usually for a period of up to five
years, and will affect the ability to obtain further credit during
its duration.
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