IVAs and the Insolvency Act 1986

If you`re struggling with unsecured debts that you can`t afford to repay, you may be considering an IVA (Individual Voluntary Arrangement). IVAs can reduce your debt repayments to a manageable level, and write off the debt you can`t afford - but you should also consider the disadvantages before you go ahead.

IVAs: a government-approved debt solution

IVAs were introduced as part of the Insolvency Act 1986 as an alternative to bankruptcy. Many people consider IVAs a preferable alternative to bankruptcy, in that they avoid some of bankruptcy`s downsides - for example, you`re much less likely to lose your home on an IVA.

A government-approved solution, IVAs are legally binding. This might sound daunting to some people, but it actually protects you - once an IVA has started, your lenders will be bound by the terms, and won`t be able to pursue you any further for the debts (unless you can`t maintain your payments - you`re obliged to keep up with your side of the IVA, too).

How exactly does an IVA work?

An IVA involves repaying as much of your debt as possible over an agreed time period (usually five years). You`ll make regular monthly payments to your Insolvency Practitioner (or `IP`), who will subsequently pay the agreed amounts to each of your lenders.

You`ll be expected to pay as much as you can towards your IVA each month. This will be calculated based on your take-home income minus your essential outgoings (not including payments to your debts) - what`s left will be how much you can afford to pay towards your debts.

On successful completion of the IVA, you`ll be legally debt-free, as far as your unsecured debts are concerned.

Are there any downsides?

Like any debt solution, IVAs have their disadvantages. Because you`ll be paying as much as you can, you`ll be left with little money to spare until your IVA has finished. It`ll also have a significant impact on your credit rating, which will make borrowing money more difficult in the future - in most cases, for one year after the IVA finishes. Plus, if you`re a homeowner, you`ll probably be expected to free up some of the equity in your property so you can pay more towards the IVA.

So you must be certain that an IVA is the right option for you before you go ahead.

If you want to know more about IVAs and how one could help you, click here or call 0800 195 2911.

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Tags: iva, insolvency act, what is an iva

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