Understanding Individual Voluntary Arrangements

ivaIndividual voluntary arrangements or IVAs is seen as an alternative option introduced in 1986 when bankruptcy prevailed. It is an alternate option of rather than writing off your debt amount, you can pay whatever you can on a month-to-month basis. It is usually a five-year agreement between a borrower and a creditor. It is also legally binding thus making it different from the debt management plan. A debt management plan also bounds you to pay monthly installments but it is not legally binding. Hence, it can be a very useful option for the borrowers who are trapped in a financial crunch and having difficulties in repaying the amount.

Now the next question arises that who can really apply for an IVA. There is no strict criteria regarding IVA however anyone having debt of $15,000 to $20,000 can be qualified for an IVA. People who would like to avoid bankruptcy will see it as the most lucrative option because it helps you to look good in your credit file and also creditors see the person’s commitment  towards repaying his/her debts. However, the option to apply for an IVA may vary from country to country depending upon their legal and financial structures.

As per the notion of applying for an IVA, it is important that a person should understand the legality of an IVA and hence consults a proper debt advisor who doesn’t seem to make profit out of borrower’s personal circumstances.

Another thing which of utmost importance is to understand that what IVAs can help to clear. This refers to the type of loans to which IVA can be offered. It usually helps the borrowers with unsecured debts e.g. credit and store cards, overdrafts and student loans. Mortgages and other kind of loans which may be secured on a property cannot be secured through an IVA. This is to keep in mind that rent and tax arrears are also excluded along with the fines, car fines & court fines etc. In IVA advertisement, some claims are made which are highly unrealistic with regards to the amount of debt which can be written off.

There are also some pros and cons of an IVA which a borrower should keep in mind before applying for an IVA.

Pros:

  • Those who have an IVA are more likely to secure their homes and cars than those who declared bankrupt.
  • Restrictions on the credit file following an IVA are tough but they are not as tough as with the bankruptcy and it will be always visible on the credit file.
  • After the five year term of an IVA, any outstanding debt will be cancelled.
  • If the creditors agree for an IVA, interest rates will be frozen on the affected credit facility

Cons:

  • The borrower will need to release any equity in the house to pay off the debts through an IVA.
  • IVAs are not free. There are certain fees associated with setting up an IVA. The debt consultants also charge certain fee. This is how they make profit from the clients. This is the main reasons that there are various consultants who provide IVAs services and this is the sole reason that they advertise much.
  • Any inherited or acquired wealth will have to go to the arrangement to pay the creditors. Hence, one should be aware about this before finalizing the deal.
  • Your private pensions can be affected greatly. You may have to pay the pension contribution into the arrangement for the duration of 5 years.

An IVA can only be successful if it can be adhered to, minimum payments agreed for each month during the five years period must be honored. Most of the people see it as a very lucrative option but unable to keep up with the payments. Hence an individual should make a decision after a careful selection of the choices available to him/her and then make a best possible decision.