Can I write off credit card debt with an IVA?

Struggling to meet your debt repayments is never an ideal situation, and high-interest credit card debts can be particularly serious if they begin to grow.

One option for people with problem credit card debts may be an IVA (Individual Voluntary Arrangement) - a formal arrangement with your lenders in which you`ll repay as much of your unsecured debt as you can afford over a set period of time, after which your lenders will write off the rest.

IVAs have helped many people over the years, but it`s important to understand that entering an IVA is a big commitment that will have a significant effect on your credit rating.

Simple guide to IVAs

Before you can enter into an IVA, you`ll need to work with an Insolvency Practitioner (or IP) to draw up your IVA proposal. This proposal sets out how much you can afford to pay towards your debts, how long you will be making payments for, and other details relating to the IVA.

For the IVA to go ahead, 75% (by debt value) of voting lenders must approve the terms. If this happens, your other unsecured lenders will also be bound by the terms.

An IVA is a legally-binding arrangement, and once it`s in place, your creditors won`t be able to pursue you any further for the debts - they won`t be able to try to make you bankrupt, for example - as long as you live up to your commitments as laid down in the terms of your IVA.

If it`s approved, you`ll start making regular payments towards your debts, based on the maximum you can afford after your essential expenses have been covered. A typical IVA involves making monthly payments for five years, but this can vary.

On successful completion of the IVA, you`ll be legally debt-free.

An IVA covers `non-priority` debts, which includes credit card debts. It does not cover `priority` debts such as mortgages, secured loans, etc., but it will help indirectly by making them affordable, since your IVA payments would be calculated to take them into account.

What are the downsides of an IVA?

An IVA will have a big impact on your credit rating, and this will make borrowing money more difficult until it disappears from your credit report (six years after your IVA begins).

You will have to pay as much as you can towards your IVA for its duration, meaning that you`ll be left with very little spare income - it`s only worthwhile if you are sure it`s the most appropriate way for you to clear your debts.

And if you`re a homeowner, you may be required to release equity from your home towards the end of the IVA.

For more information on IVAs and a range of other debt solutions, click here or call today on 0800 195 2911.

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