IVAs and insolvency in 2010

Although there have been signs that the economy has started to recover, many people continue to struggle with debt - and it`s likely we`ll see high numbers of insolvencies this year, too.

If you`re faced with unmanageable debts that you don`t think you`ll ever be able to repay, you may need to find out more about insolvency. Although this may seem like something you should avoid, it may be necessary if you really can`t afford to repay your debts.

There are a number of different types of insolvency, and which one is right for you will depend on your individual circumstances. One of the most common types of insolvency is an IVA (Individual Voluntary Arrangement).

IVAs: a quick introduction

In an IVA, you`ll repay as much of your unsecured debt as you can afford (i.e. what you can afford after you`ve accounted for your essential monthly costs), after which the remaining debt will be written off by your lenders. It`s a legally binding agreement, meaning that once an IVA is in place, your lenders won`t be able to change their minds or pursue you any further for the debts (unless you fail to stick to the terms of the agreement).

An IVA usually involves making monthly payments for five years (although this can vary depending on what is agreed). At the end of this period, your outstanding unsecured debt will be written off and you`ll be legally debt-free.

However, like any form of insolvency, an IVA will significantly affect your credit rating. And since you`ll be expected to pay as much as you can towards your debts, you`ll have little spare income for the duration of the IVA. Plus, if you`re a homeowner, you`ll probably have to release equity from your home.

What other forms of insolvency are there?

If you have spoken to a debt adviser or IP (Insolvency Practitioner) and you have established that an IVA isn`t the right choice for you, there may be a few other options. Some of these include:

Bankruptcy

Although many people consider bankruptcy a last resort, it can be the best option in some people`s circumstances. The bankruptcy process is usually much quicker than an IVA, for example - you`re likely to be discharged in a year.

A significant downside of bankruptcy is that if you`re a homeowner, your home may well be sold so you can pay your lenders more.

Debt Relief Order (DRO)

This is a new form of insolvency aimed at people with a low income, relatively low debts, and very little in the way of assets. You can enter a DRO without going to a court, and it involves a one-off fee of £90.

A DRO will last for one year, in which time you`ll be protected against further action from your lenders. At the end of this year, providing your circumstances haven`t improved, the DRO will end and your debts will be written off.

For more information on different types of insolvency, as well as other debt solutions, call us today on 0800 195 2911.

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