Here are some of the main reasons to start an IVA. This is not an exhaustive list but they tend to be the most common.
- Reduce your debt payments
- Debt is Written Off
- Legal Protection from your Creditors
- No Up Front Fees
- Not forced to sell your Home
Reduce your Debt Payments to an affordable amount
One of the main reasons to start an IVA is that your debt payments are reduced. You will no longer be struggling each month trying to find the money to pay your debts and living expenses.
You payment you make into the Arrangement is reduced down to a single affordable monthly amount. This is known as your Disposable Income.
As such you know that you will always have enough left over to maintain all of your household bills without having to borrow more.
Only your unsecured debts are included in an IVA. You still have to pay the standard amounts towards your secured debts such as a Mortgage or a Car HP agreement.
Debt is Written off
An IVA normally lasts for 5-6 years. During this time you pay your agreed payment each month. Once this is done you stop paying and any debt which remains is written off.
It is important to understand that if your circumstances improve your payments may increase. However you will only have to continue paying for the remaining agreed number of payments.
If your finances become worse you may be able to reduce the payments that you make. However you will probably be asked to extend the length of the agreement for an extra 12 months to compensate.
There is no set percentage of debt written off by an IVA. The amount will vary depending on how much you can afford to pay into the Arrangement.
Legal Protection from your Creditors
Once your IVA is in place you get legal protection from your creditors. They are no longer allowed to take action against you to recover their debt. The endless telephone calls and collection letters will stop.
In addition are no longer allowed to further interest or late payments charges to your accounts. They cannot apply for a CCJ against you or an attachment of earnings to take money from your wages.
If you are a home owner and you start an IVA your creditors can no longer apply for a charging order against your property. However any such Orders already in place cannot be overturned.
If you have already got a CCJ against you or money is currently being taken from your wages these things are overturned as soon as your IVA starts.
No Up Front Fees are payable if you start an IVA
If you are struggling to pay your debts the last thing you will be able to afford is a fee to start a debt solution. An upfront fee might put you off all together.
Starting an IVA could therefore be an ideal fit as there are no upfront fees to pay. Once the Arrangement is in place you simply make the agreed monthly payments.
The Insolvency Practitioner (IP) who manages the Arrangement on your behalf will charge fees. However you do not have to pay these yourself. They will be deducted from your agreed monthly payments.
Your monthly IVA payments are not increased because of fees. They are always based on what you can afford (your disposable income) and no more.
You are not forced to sell your Home
If you are a home owner starting an IVA is a good way of protecting your property from your creditors. You will not be obliged to sell. However you do have to agree to try and release equity.
There are strict guidelines surrounding this process which are designed to protect you. Firstly you can never be asked to borrow more than a total of 85% of the value of your home.
In addition the increase to your mortgage payment can never be more than 50% of your normal IVA payments. This means that you will always be left with an affordable mortgage.
If there is no equity in your property at the end of your IVA the equity release obligation is ignored. However house prices can rise so a negative equity position at the beginning may change by year 5.