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IVAs pros and cons

If you are thinking about entering an IVA (Individual Voluntary Arrangement) to help clear your unmanageable debt, it’s important that you take the disadvantages into account as well as the advantages.

Here, we will take a brief look at some of the ways an IVA could benefit you, and what some of the drawbacks might be:

Pros

• When you enter an IVA, all interest on your unsecured debts will be frozen. And because an IVA is a legally binding debt solution, your creditors can’t make changes to the terms of the agreement once it is underway.

• If, while you are in an IVA, your circumstances were to change – and it affected your ability to make your monthly payments – you and your Insolvency Practitioner (IP) might be able to arrange an ‘IVA variation’. This would basically involve a change in the way your IVA runs. And like your original IVA proposal, it would have to be accepted by voting creditors who own at least 75% of your total debt.

Cons

• In most cases, an IVA will last for a total of five years, and it will stay on your credit report for one year after completion. This can make obtaining further credit during this time harder and/or more expensive. If you decided to enter bankruptcy, on the other hand, you could be discharged after 12 months (although your credit rating would still be damaged).

• If you are a homeowner, you may be expected to release some of the equity in your property half way through the final year of the agreement. This money will be used to repay more of your debt.