IVA Advantages and Disadvantages

IVA Advantages and Disadvantages

Before starting an IVA you should get an understanding of both the main advantages and disadvantages. Whether it is right for you will depend on your financial circumstances.

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Significant Advantages of an IVA

1. The Arrangement lasts for a fixed period
An IVA normally lasts for 5 or 6 years. As long as you stick to the payment terms you know you will be free of your unsecured debt after this time. It is possible to settle an IVA early if you can offer a cash lump sum. However it could also be extended if agreed payments are missed.

2. You only pay what you can afford
Your debt payments are reduced to a single affordable amount. The payment you make each month is based on your disposable income (also known as surplus income). Once you start the Arrangement you should always have sufficient cash to maintain your ongoing living expenses.

3. Debt is often written off
Any unsecured debt included in the Arrangement which remains outstanding after it is finished is written off. The amount written off is not fixed. It depends on how much you can afford to pay into the agreement.

4. Your Home is protected
If you are a homeowner an IVA protects your property from your creditors. They are prevented from taking further action against it such as applying for a Charging Order. However you must maintain your mortgage payments throughout the Arrangement and you may be required to try and release equity.

5. Interest and charges are frozen.
One of the problems with trying to repay debt is the interest and charges that are continually added to your accounts. Once your IVA is in place the creditors are legally obliged to stop adding further interest and charges.

6. Legal protection from your creditors
No further legal action can be taken against you by your creditors once the Arrangement is in place. You are protected from CCJs (County Court Judgements) and Attachments of Earnings. If such action has already been taken against you it is overturned.

Significant Disadvantages of an IVA

1. Your Credit Rating becomes poor
A record of your IVA will be placed on your credit file. This will seriously damage your credit rating. The record remains on your file for 6 years and will make it much more difficult for you to get new credit facilities during this time.

2. Restrictive Living Expenses Budget imposed
You will have to live within a relatively restrictive living expenditure budget. You remain in control of your money and bank account. However you may find that the allowances for things like housekeeping and clothing expenditure are less than you have been used to.

3. Home Equity may have to be released
If you are a homeowner you will be obliged to try and release equity from your property in the fifth year of your IVA. The money you raise is used to increase the amount paid back to your creditors. If you are unable to release available equity the payments you make are likely to be extended for 12 additional months.

4. You details recorded on a Public Register
Generally speaking an IVA is a private agreement between you and your creditors. Very few people are actually told. However your details are recorded in the Insolvency Register. This means it is possible for someone to find out about the Arrangement by searching the Register for your name.

5. Failure to complete your IVA will mean you still owe your debt
If you are unable to maintain your agreed IVA payments the Arrangement could fail. This would mean that you remain liable for your debts. You could then be forced into bankruptcy by your creditors. However this is unusual unless you owe money to HMRC.