Unfortunately, many people are currently experiencing financial difficulties. As a result, many people may be exploring debt management choices, such as declaring bankruptcy. Individual Voluntary Arrangements are one of the numerous possibilities accessible. Here’s a look at IVAs and whether or not they’re right for you.
A Look At IVAs – What Are They?
An IVA is a type of insolvency, similar to bankruptcy and Debt Relief Orders.
It’s a long-term, legally binding agreement between you and your creditors that can’t be easily changed or terminated; typically, you make monthly payments for five or six years; if you have a home with equity, you’ll usually have to remortgage in the last year or make an additional year of payments; and at the end of a successful IVA, your remaining debts are wiped out.
An IVA may be a realistic debt solution if you have assets to protect.
Many IVAs, however, fail. In 2019, this was roughly 30%, and it’s usually because you can’t afford the monthly payments that looked acceptable at the time. A period of five or six years is a long time, and a lot can happen in that time.
Who Do They Suit?
The protection of a house with equity is one of the key benefits of an IVA over bankruptcy. An IVA, on the other hand, is not the best debt solution for everyone who owns a home.
Try to pull money out of your house in the final year of your IVA. Read the section on Equity Release below before starting the IVA to get a better understanding of what will happen.
Mortgage rates may rise in the next five to six years. Will you be able to keep up with your IVA if your mortgage payments go up?
Are you planning on relocating during the IVA? You won’t be able to get a new mortgage for six years if you have an IVA on your credit record, even if your IVA is over.
A Look At IVAs – Work Out Your Debts
You must keep a detailed record of your obligations and the amounts you owe before starting an IVA. If you file for bankruptcy, all of your debts will be eliminated instantly, but you must mention them in an IVA or they will not be included.
Although debts can sometimes be added later, your IVA may be prolonged, lengthening the process. It’s far better to pay off all of your debts as soon as possible.
If you owe money to HMRC, you must have filed all previous tax returns.
A Look At IVAs – Varied Income
However, you must be aware of what will happen if you receive irregular payments or large lump sums. Because approximately half of the additional funds is normally allocated to your IVA, this does not guarantee that your IVA will be completed sooner. Your IVA will only be cancelled early if you pay all of your bills in full, as well as the IVA firm’s expenses, which will be at least £3,500.
If you expect a big wage increase, you should generally avoid an IVA. In this case, the IVA may only write off a little percentage of your debt because you end up paying so much more into it. It could be better to put off paying your bills until you get a job.
Seek Help
A skilled IVA firm will assist you in comprehending all of the terms in your IVA; ask questions until you’re sure you understand everything.
If you don’t think your present IVA firm is being helpful, talk to another one.
Inquire about the person who will be handling your IVA. Some companies who set up an IVA then pass you over to another company to manage for the next five or six years. This, in my opinion, is not a good concept. You must also be able to speak with someone about any concerns that develop, rather than being put to a “warehouse” where you would be treated as if you were just another case number.
The Process
You’ll almost certainly have to work hard at budgeting during the next five years to scrape by. You will be in a better position to deal with any challenges that emerge if you can set away a small amount of money each month.
Once a year, each IVA should be examined. This is usually a simple and painless process if not much has changed. If your income has grown, you may be obliged to pay more, and if your costs have increased, you may be eligible for a lower payment.
