If you`re looking for a debt solution that can bring your debt repayments down to a level you can afford, you may have considered an IVA (Individual Voluntary Arrangement).
An IVA is a contractual arrangement with your unsecured lenders in which you`ll pay as much as you can towards your debts for an agreed period of time, after which your remaining unsecured debt will be written off.
IVAs were brought in as part of the Insolvency Act 1986, as an alternative to bankruptcy. They are a government-approved debt solution - and once you have entered into an IVA, you will be protected against further action from your lenders.
In most cases, your IVA will require you to make regular monthly contributions over a period of five years (although you and your Insolvency Practitioner (IP) may agree different terms with your lenders). You`ll be required to pay as much as you can afford every month.
There may also be other terms: for example, if you`re a homeowner, you may be required to release some of the equity in your home in the final year of the IVA.
On successful completion of the IVA, you`ll be legally debt-free (as far as unsecured debt is concerned - it won`t write off any secured debt you have, like a mortgage). However, a record of the IVA will remain on your credit history until six years after it began (so, in most cases, until one year after it has finished).
IVAs are only suitable for people who have no realistic means of repaying their debts in full. Your lenders won`t accept an IVA unless this is the case - it simply wouldn`t be appropriate if there is a way for you to repay your debts `in a reasonable time`.
Even if you are eligible for an IVA, it might not be the best option for your individual circumstances. Even though some people feel an IVA is a preferable alternative to bankruptcy, in some cases bankruptcy can make more sense.
Remember that an IVA is a significant commitment that will leave you with little money to spare while it`s in progress. You would have to be committed to making your payments for the duration of the IVA.
If it is suitable for your circumstances, though, an IVA can be a very effective way of paying off the debt you can afford - and writing off the rest, leaving you debt-free.
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