Individual Voluntary Arrangement UK

Using an IVA To Write Off Debt

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Advice On Using An Individual Voluntary Arrangement UK

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Individual Voluntary Arrangement UK

In the UK there is a unique solution to help people get out of serious debt without filing for bankruptcy. The Individual Voluntary Arrangement was introduced by the UK government in the 1980s as a measure intended to provide an alternative to bankruptcy for small businesses. It has since become very widely used to tackle consumer debt and is now a highly popular system for resolving situations that might otherwise result only in bankruptcy.

Individual Voluntary Arrangement UK – How Does It Work?

Commonly referred to as an IVA, the individual voluntary arrangement is the UK answer to situations where the amount of debt you have and the disposable income available are way out of proportion. For people with a few thousand pounds of debts and a reasonable steady income, the usual course of action is to use a debt management plan. However, if you have a lot of debt and the income you have is a long way short of being able to keep up with the repayments you have agreed, you may be facing bankruptcy if one of your creditors chooses to take action against you. This is where an individual voluntary arrangement can provide an alternative solution.

What the IVA does is to allow you to make a regular monthly payment, which is within your means to afford, towards your debts for a fixed period of time. The period of an IVA is usually five years, and at the end of this period your remaining debts are written off. For example, if you had debts of £30,000 and you managed to repay £10,000 over the term of the IVA, the remaining £20,000 would be written off when the arrangement finished. When this happens the creditors are not permitted to pursue you for any debt that was not repaid.

Individual Voluntary Arrangement UK - Advantages

The main advantage of an individual voluntary arrangement is that it is a way to simply wipe out a large part of your debts. You could write off up to 75% of your debts, though about half is probably more typical.

The only real alternative when your situation is very serious is to file for bankruptcy, which is a serious step and which has long term consequences. Providing a viable alternative to this is one of the key reasons people prefer to use an IVA. Unlike with bankruptcy, you have more control over the setting up of the arrangement and what is included in it, so you are much less likely to lose your home.

You only have to pay what you can afford, and you know that you will be free from debt again in five years time. There is also the benefit of having only one payment to think about, which is much easier to manage than a whole series of different debts, due at different times.

One advantage that is a consequence of the legal nature of the individual voluntary arrangement UK, is that you only need the agreement of 75% of your creditors for the IVA to be set up and binding on all your creditors. The percentage that have to agree is related to the size of the debt, so it is the creditors for 75% of the amount you owe that you need to agree. If you can secure this support for setting it up, any remaining creditors that are not happy to join in will have no choice but to take part too. This is a great way to ensure that you deal with all of your debts at once and is a marked difference between an IVA and a debt management plan, which is informal and has no means of making creditors sign up.

Individual Voluntary Arrangement UK – Potential Disadvantages

You are not able to sign up for an individual voluntary agreement UK just because you want to. You must meet certain criteria for the system to be viable. These are generally just that you must have unsecured debts of at least £15,000 to at least two creditors, and be struggling to keep up with payments. You must understand that no creditors are going to agree to an IVA if they have reason to believe you can afford to pay the debts back in full, so you must be able to demonstrate genuine hardship.

As explained above, you do need to get the agreement of creditors for at least 75% of your debts for the IVA to go ahead. The other side of this formal and legal aspect to the agreement is that it is not an easy matter to just get out of the IVA if you change your mind. With a debt management plan you could stop it when you want to, if your circumstances changed, for example. With an individual voluntary arrangement you cannot just cancel the agreement if something changes. If you were to come into some money you may want to use it for something else, but under the agreement you would probably have to put a least a portion of it into the IVA to pay your creditors.

Other factors to be aware of are that you will not be able to take on any additional credit while your IVA is in place (though you can still use a bank account) and you could still be made bankrupt if you fail to keep up with payments.

Individual Voluntary Arrangement UK – How To Apply

Once you understand a bit about how an individual voluntary agreement works, you can make a judgement about whether it may be something worth exploring. The easiest way to see if it may help you is to apply to a specialist debt company, who will go through your finances with you and advise you on the best option for your situation. Which company to use is a very important decision, as you could end up worse off if you end up approaching one of the less reputable organisations.

The safest approach is to shop around by applying to several companies, but only apply to ones that you know to be well established and reputable. Applying online is easy and you are under no obligation to accept any offers made.

You can find a list of the most reputable IVA Specialists on the main IVA page of this site. Or you can apply direct to the debt company we rate the highest by using the form at the bottom of this page.

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