For people facing unmanageable debt problems, an IVA (Individual Voluntary Arrangement) can be the best way to repay their unsecured debts.
It works by enabling you to repay as much of your unsecured debt as you can afford - leaving enough money for all your other expenses - over an agreed time period (normally five years). At the end of this time, assuming you`ve done everything the terms of the IVA require, the rest of your unsecured debt will be written off.
Before you can start on your IVA, you`ll need to work with your Insolvency Practitioner (also known as an IP) to draw up an IVA proposal. This is a document which gives your lenders a full rundown of your financial background, and sets out the proposed terms of your IVA (e.g. how much you can afford to pay to each lender, and over what period of time).
This will then be sent to your lenders, who will be invited to vote for or against your IVA. 75% of your unsecured lenders (by debt value) must vote in favour for your IVA to go ahead. If this happens, the rest of your unsecured lenders will be bound by the terms, even if they didn`t vote in favour.
Your IVA will then begin. You will be protected against any further action from your unsecured lenders (unless you break the terms of the agreement).
On a typical IVA, you`ll make regular monthly payments for five years, and on successful completion of this, you`ll become legally debt-free - as far as your unsecured debts are concerned.
The idea of being able to write off your unaffordable debts may seem like a good idea if you`re struggling, but don`t forget that there are also downsides. As a form of insolvency an IVA will have a significant impact on your credit rating.
Also consider that you`ll be expected to pay as much as you can at all times. If you can`t commit to regular monthly payments, an IVA isn`t likely to be right for you.
Finally, if you`re a homeowner you may have to release some of the equity in your home in the last year of the IVA.
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