Could an IVA prove an effective solution for you?

In years gone by consumers that were really struggling with debt and had no hope of ever repaying the amount that they owed had to go through bankruptcy, which is a process that has a real stigma attached and could have a profound effect on the future of those going through this process. However, over recent years new legislation has provided consumers with a softer alternative to bankruptcy known as Individual Voluntary Arrangements. Although this type of process can still have long lasting effects in terms of your financial future it is not quite as harsh as bankruptcy proceedings.

Most consumers will have noticed that over the past couple of years more and more glossy advertisements relating to Individual Voluntary Arrangements, or IVAs as they are simply known, have sprung up on our television screens and in magazines. However, these advertisements can make taking out an IVA seem like a simple solution. You should bear in mind that an IVA is not an easy route out of debt, and should instead be considered a last resort, as with bankruptcy, if there is no other solution when it comes to repaying your debts.

Other solutions

There are other solutions that you can look at in the event that you are struggling with your debts, and these are softer alternatives to IVAs or bankruptcy, and are unlikely to have such a long term effect on your financial future. Most of these alternatives will involve paying smaller amounts and repaying the debt over a longer term, which means in effect that you will still be repaying your debts in full, unlike bankruptcy or IVAs, but you will be doing so by modifying the terms of the loans and debts through changing the amount that you repay and the term over which you make the repayments.

Alternatives such as this are by far preferable to IVAs and bankruptcy, and this is because the lender still gets back the amount owed, albeit over a longer term. Amongst the alternative available to you are debt management advise and counselling, debt management repayment schemes, informal arrangement with creditors, and debt consolidation.

Some people may benefit from an IVA

Although IVAs should not be taken lightly and should be given careful consideration before you embark on this scheme, they can suit some people who have very little hope of repaying their debts through another solution. However, you do need to remember that there are certain eligibility requirements that have to be met before you can opt for an IVA. There are a number of IVA firms in operation to help those that do qualify for an IVA – you should remember, however, that ultimately, even after all of the paperwork has been done, the creditors can refuse to accept the IVA, and without a majority acceptance from creditors you cannot go ahead with the IVA.

Amongst the eligibility requirements to opt for an IVA are:

• You or your partner must be in full time employment when you take out an IVA
• You must have unsecured debts of at least £15,000 in order to go ahead with an IVA

If your IVA is accepted you will pay one set amount each month, which will then be distributed as arranged amongst your creditors on a pro-rate basis. An IVA usually lasts for sixty months (five years) and at the end of this time any outstanding balances on your debts are written off, leaving you with a new slate to make a fresh start. However, you may find that the after effects of an IVA can continue to make life difficult financially for years to come.

Finding out more about IVAs

If you meet the eligibility requirements for an IVA then your next step is to learn more about whether this type of debt solution could suit your needs. You should make sure that any IVA company that you contact also explains the risks and downside of taking out an IVA, as many will focus on the benefits. Only by learning more about the risks as well as the benefits can you make a truly informed decision with regards to whether or not to opt for an IVA.

If you do decide to go ahead, your adviser will need information on your income, outgoings, and debts, so that he or she can work out an affordable monthly amount that you will then pay for the term of the IVA, and which will be distributed to your creditors. You should bear in mind that arranging an IVA can take time, and even at the end of it all your creditors may turn down the application, which means that you will need to think of back up solutions to deal with your debt problems. Often, a debt counselling charity or the Citizen’s Advice Bureau can help by offering advice on the alternatives that are available to you based on your circumstances.