Many people struggling with an unmanageable level of debt feel like bankruptcy is their only option. If you are struggling with your debts, and you don’t think you’ll ever be able to repay them, then you may be glad to know that there is an alternative to bankruptcy – an IVA (Individual Voluntary Arrangement) is a formal agreement between you and your creditors that may be a more suitable solution to your debts than bankruptcy.

So what is an IVA?

• As mentioned, an IVA is a formal agreement between you and your creditors. When you enter an IVA, you will, in most cases, be required to make regular monthly payments to your IP (Insolvency Practitioner) for 5 years.
• An IVA could be suitable for you if you have an unmanageable level of unsecured debt that that you cannot afford to repay within a realistic period of time, but you can commit to making regular reduced monthly payments for the duration of the agreement.
• The payments you make will be based on how much you can actually afford after your essential expenses (such as food, utility bills and mortgage/rent payments) have been covered.
• Assuming the IVA comes to a successful conclusion, any remaining unsecured debt will be written off when it does.

Advantages of an IVA

An IVA could deliver several advantages. For example:

• When you enter an IVA, all interest on your debts will be frozen – meaning your debts won’t grow any bigger.
• With an IVA, the portion of your debt that you cannot afford to repay will be written off at the end.
• An IVA allows you to lower your monthly unsecured debt repayments to a realistic, affordable level.

Disadvantages of an IVA

However, an IVA is a substantial commitment: you’ll have to contribute the majority of your disposable income for 5 years (in most cases). It’ll also have a significant impact on your credit rating for 6 years. Plus, if you’re a homeowner you’ll probably have to release equity from your property so your creditors can get back more of the money they’re owed.

IVA or bankruptcy?

The answer to this depends on your circumstances. Some people may find that bankruptcy is actually the most appropriate solution for their debts, while others may be better off with an IVA.

Before committing to any debt solution, you should always speak to a professional debt adviser. They should be able to answer any questions you may have about IVAs and bankruptcy.

For more information on IVA’s, visit the IVA Advisory Centre

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