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Can an IVA help with unmanageable debt?

3 February2010

Dealing with unmanageable debt can be extremely difficult - but there is help available. When you call a debt adviser to discuss ways of clearing your debts, one solution they may recommend is an IVA (Individual Voluntary Arrangement).

How an IVA can help

If your unsecured debt repayments have become unmanageable, an IVA can enable you to repay what you can afford over an agreed period of time, after which the remaining debt will be written off by your lenders. In most cases, you`ll have to commit to making monthly payments (as much as you can afford after other essential costs have been met) for five years, although you may end up agreeing different terms with your lenders.

One drawback of entering an IVA is that your credit rating will be damaged, and this will make borrowing money more difficult for one year after your IVA ends (assuming your IVA runs for five years). You`ll also be left with very little spare money while the IVA is ongoing - and if you`re a homeowner you`ll probably be required to release equity from your property so you can contribute more to the IVA. So you should only enter into an IVA if you`re certain it`s right for your circumstances.

What type of debt is an IVA best for?

An IVA will only directly deal with non-priority debts (so things like unsecured loans, credit cards, overdrafts, etc.). It can`t help directly with priority debts (such as your mortgage, council tax or bill arrears), although - because payments to your IVA would be calculated to fit around these expenses - the IVA will still help you keep up with them.

Also keep in mind that an IVA won`t be right for you unless your debts are actually unmanageable. You`ll have to demonstrate that you`re unable to repay your debts within a reasonable period of time, but you`ll also have to satisfy your lenders that you can commit to regular monthly payments for the duration of your IVA.

If you think you might be able to repay your debts over time - even if it means reducing your monthly payments - another debt solution such as a debt management plan might be more appropriate.

For help and guidance on IVAs or any other debt solution, click here or call our friendly debt advisers on 0800 195 2911.

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