Dealing with debt can be tough, but the good news is that there are many solutions out there made to help you get out of your debt. Regardless of your situation, there are options available to you to help you manage your debt and get on the road to financial freedom.
There are many forms of debt management, from breathing space to tailored debt management plans. You can seek advice about what is available from a debt solutions company. One way to deal with your debt is through an individual voluntary arrangement (IVA).
IVAs are a form of agreement you make with your creditors to pay off all or an arranged part of your debts. This is made through regular fixed payments over a period of time.
An IVA can give you more control over your assets than you would have if you declared bankruptcy. It is an agreement to pay a regular, fixed monthly payment to an insolvency practitioner who distributes this between your creditors.
Your IVA must be set up by an insolvency practitioner who will send your proposal to your creditors and set up a creditors meeting. Creditors holding 75 per cent of your debt must agree to the IVA in order for it to be put in place.
This means that the proposal may not go through if creditors with whom you have majority debt refuse.
IVAs are only available for unsecured debts such as credit cards, overdrafts, personal loans, personal debt to family and friends, store credit cards and so on. They are not available for debts such as rent arrears and mortgages, court fines, student debt and other similar debts.
How much you repay will depend upon your financial situation. You must make regular payments or you risk falling into more debt and get into further trouble (1) with creditors and insolvency practitioners and can end up bankrupt.
If managed properly, an IVA can help you pay off your debts and become debt free. IVAs also prevent creditors from taking action against you for your debts. However, your IVA will be added to the individual insolvency register until three months after it ends, meaning it is publicly accessible knowledge.
There are many benefits to having an IVA. You will make affordable monthly payments over a period of time, usually five to six years and you are able to avoid bankruptcy. Your home will not be taken from you provided you maintain mortgage payments, meaning you stay in control of your assets.
However, if you have equity in your home, you may need to try and remortgage. This can affect the interest you pay on your mortgage. If you’re unable to remortgage your property, you can make a maximum of 12 extra payments to your IVA.
However, when applying for any kind of debt management solution, you should be aware of the risks.
If an IVA fails, creditors may be able to request your insolvency practitioner petitions for bankruptcy for you. Your credit rating will also be negatively affected and your IVA will be accessible on a public register.
There is also the risk that your creditors may not agree to your IVA, leaving you to find another option to help pay off your debts. Your spending will also be restricted during the time your IVA is in place.
If you are struggling with debt as a result of the cost of living challenges you can contact the Fresh Start UK team today.
References:
1.https://www.citizensadvice.org.uk/debt-and-money/debt-solutions/individual-voluntary-arrangements-ivas/while-youre-on-an-iva/if-youre-struggling-with-your-iva-payments/#:~:text=Most%20IVAs%20will%20give%20you,might%20also%20make%20you%20bankrupt.
