Debt is a very personal issue and, while there are many debt solutions out there to help people out of financial difficulties, what works for one person may not be suitable for the next. It’s all entirely circumstantial and should be approached on a case by case basis in order to find the best and most appropriate path to take.
One potential solution is an individual voluntary arrangement (IVA), which is a legally binding agreement between you and your creditors where you repay your debt over an agreed period of time.
To help you work out whether an IVA would be the best solution for you and your situation, here are some FAQs about these agreements that may steer you in the right direction.
What is an IVA?
IVAs serve as an alternative to bankruptcy, allowing those with debts above £10,000 the chance to repay their creditors over a set timeframe, typically five to six years.
What debts are covered by an IVA?
You can include arrears in gas and electricity, council tax, water, personal loans, payday loans, store cards, credit cards, overdrafts, debts to family and friends, income tax and other outstanding bills, such as vet bills, solicitor’s fees and so on.
What debts aren’t covered by an IVA?
Debts that can’t be covered by an IVA include student loans, child support arrears, TV licence arrears and court-ordered maintenance arrears. If you have debts of this kind, you will need to deal with them separately.
How do IVA repayments work?
With IVAs, a repayment plan is agreed with the insolvency practitioner, whether that’s monthly payments, a lump sum or both. This repayment plan will be based on how much you can reasonably afford.
Your financial situation will be reviewed each year that you’re on the IVA. If your income changes, your repayments may also change to reflect this. A pay rise, for example, could mean that your IVA repayments increase as well.
How will an IVA affect my life?
There are rules and restrictions included with an IVA. You can expect it to impact your spending and you’ll have to stick to a budget. You will also only be allowed to borrow up to £500 in new credit during the agreement, although it may be more difficult to get approval for credit in any case.
You may also have to sell assets to make repayments and return items that haven’t been fully paid for. Any savings are typically put towards your debts, as well.
A record of IVAs is updated on the Insolvency Register (1), which is publically available, so could potentially damage your reputation if you’re self-employed. An IVA could also have a negative impact if you work in certain professions. And it will be recorded on your credit report, which will have a severe
impact on your credit score.
If you are struggling with debt at the moment because of cost of living challenges, get in touch with us today to see how we can help.
References:
1. https://www.gov.uk/search-bankruptcy-insolvency-register
