Being contacted by your lenders about missed debt repayments can be a worrying situation. Although the first letters and calls you receive will probably be simple reminders to make your missed payments, the consequences can become a lot more serious if your accounts stay in arrears.
If you find yourself in this situation, it`s important that you find a debt solution that can help you clear your debts. One option is an IVA (Individual Voluntary Arrangement) - an alternative to bankruptcy in which you`ll repay as much of your debt as you can afford, and your lenders will write off the rest.
An IVA is a legally-binding agreement with your lenders in which you`ll repay as much of your debt as you can afford, and write off the rest. As such, it is only available to people who have no realistic way of repaying their debt within a reasonable period of time.
On an IVA, you`ll normally make regular monthly payments to your lenders over five years, although the timescales can change depending on what is agreed with your lenders. Your payments will be based on how much you can afford once all your other essential costs (such as mortgage/rent, bills, etc.) have been accounted for.
On successful completion of the IVA, you will be legally debt-free.
As with any debt solution, there are drawbacks. You will be required to pay as much as you can towards your debts on an IVA, meaning you`ll be left with very little spare money.
You may also be required to contribute most of any increase in income (e.g. pay rises, bonuses, commission) towards your debts, and if you`re a homeowner, you may be required to release some of the equity in your home in the 54th month (half way through the final year) of the IVA.
You should also consider that an IVA will have a significant impact on your credit rating, and this will affect your ability to obtain credit in the future.
An IVA is a formal and legally-binding agreement, and your creditors will not be allowed to pursue you for the debts any further once the IVA is approved and for as long as the agreement is adhered to.
However, if you do not keep up with your IVA payments or meet any other terms of your agreement, the IVA may fail and your creditors will be entitled to take action against you, which could include petitioning for your bankruptcy.
If you have any reason to believe you won`t be able to commit to regular payments, an IVA may not be the best option for you.
If you`re in trouble with unmanageable debt, click here for more information or call 0800 195 2911.
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