You may have heard various myths about the IVA debt solution. The fact is that most if not all of them are untrue.
- Your will lose your home if you start an IVA
- You will be left with nothing to live on
- 75% of your debt will be written off
- You cannot get a Mortgage after an IVA
- If your IVA fails you have to go Bankrupt
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You will lose your home if you start an IVA
One of the main IVA myths is that you will be forced to sell your home. This is not correct. Your property is actually given legal protection. As a result creditors can no longer apply for a Charging Order against it.
In addition being in the Arrangement will make it easier for you to keep up with your mortgage payments. The amount you need to do this each month is included in your living expenses budget.
Having said that you will be obliged to try and release equity from your property to increase the amount of debt you repay. If you are unable to do this the Arrangement may be extended by 12 months.
You will be left with nothing to live after starting an IVA
Another IVA myth is after starting the Arrangement you will have nothing left to live on. You may think that all your spare money will have to be paid towards your debts each month.
It is true that you will have to pay all of your disposable income into the Plan. However this represents only the money you have left over after all of your reasonable living expenses have been provided for.
You are allowed to included amounts for all the things you need to spend money on in your living expenses budget. This includes things like clothing, entertainment, and home repairs.
Do not agree to monthly IVA payments you feel you will not be able to afford. If the Arrangement cannot be implemented for any less you should consider a alternative debt solution.
75% of your Debt will be written off by an IVA
The amount of debt that will be written off by an IVA is one of the myths surrounding this solution. It is often claimed that you will be able write off 75% or more.
It is true that in most cases debt is written off. This is because thepayments you are required to make last for a fixed period of time (normally 5-6 years). After this any included debts that remain unpaid are wiped out.
However it is not possible to give a guarantee of the amount of debt that will be written off. It will always depend on your specific circumstances and the amount you are likely to be able to pay into the agreement.
The amount of debt written off by an IVA can change after the Arrangement has started. An example of where this may happen is if your monthly payments increase.
You cannot get a Mortgage after an IVA
There are many myths about how your credit rating will be affected if you start an IVA. The truth is that a record of the Arrangement will be recorded on your credit file for 6 years from the start date.
Your credit rating will be negatively affected during this period. As a result you will find it much more difficult to get new credit including a mortgage.
However once you have completed the Arrangement and the record has come off your file your credit rating will improve. There are then mortgage lenders who will consider you.
You may be able to get a mortgage after an IVA even before your credit rating is fully repaired. However as a rule the longer you can wait the easier it will become.
If your IVA fails you will have to go Bankrupt
If you are unable to keep up with your IVA payments the Arrangement will be at risk of failure. If it fails some or all of the debt you originally owed will likely remain unpaid. You are liable for this.
However it is a myth that you will be forced to go bankrupt to deal with the problem. In most cases your creditors will simply start standard collection procedures. It is left to you to decide how to manage the debt going forward.
The one exception to this is if you owe money to HMRC. After the failure of an IVA it is possible that HMRC will demand that bankruptcy is forced upon you.
If your IVA proposal is rejected you do not have to go bankrupt. You will be free to chose any alternative solution which you feel is appropriate.