We think that in the right circumstances an IVA is a good way to help you with your debt. But you need to fully consider the consequences before you go ahead.
When you’re in debt there is a weight on your shoulders, you can feel it affecting every part of your day. So, when there are options to write off your unaffordable debt like bankruptcy or an IVA then these are going to be very appealing and if used may well feel like a weight off your shoulders. But nothing in life is free and there are always things to consider. In an upcoming blog we are going to be looking at the difference between an IVA and bankruptcy. But for today, we are going to look at an IVA and the things that you need to consider before getting one.
Are you eligible for an IVA?
The first and most important thing that you need to consider is whether you are eligible. To be able to take advantage of an IVA you must live in either England, Wales, or Northern Ireland. If you live in Scotland then you need to apply for a Protected Trust Deed, which is very similar to an IVA.
The second thing is that you must owe more than circa £6,000 of unsecured debts to at least two lenders. And you must be struggling with your current repayments to be considered.
Should you apply for an IVA you need to bear in mind that –
- You might not be automatically eligible. IVA’s can be most suitable if you have a regular ongoing income stream and/or a lump sum of money to put towards your debt repayment.
- Your IVA will be approved if the creditors you owe 75% of your debt to are in agreement. If they agree, your IVA will then be applied across all your credit lines, whether other creditors you owe less money to are in favour or not. However, if more than 25% of your creditors reject the IVA your application will be rejected.
To get a good indication of whether you are eligible check out our quick and easy debt tool here.
What are the benefits of an IVA?
The first thing to look at once you know you are eligible is what are the benefits of an IVA? There are some serious considerations when taking out an IVA, so you have to be satisfied that you know the benefits and that they are worth the cost to you.
- An IVA consolidates all your debts to different creditors in to one affordable monthly blanket payment.
- All interest and charges are frozen when an IVA is approved.
- All contact between you and your creditors will cease and be handled by your Insolvency Practitioner moving forwards.
- When your IVA is in place, you’ll receive full legal protection from any further creditor action.
- The fixed term of an IVA is usually 5 years. Any remaining debt will be written off after this time.
- If your situation worsens, your IVA might be altered to reflect any changes of circumstance.
Will the repayments stay the same?
Not necessarily, an IVA lasts for five years and every year around the anniversary of your IVA there is a review into your financial situation and if your financial situation improves you might be required to pay a portion in line with your income. Increases in your living expenses and changes in circumstances are also considered during this review.
If you earn substantial overtime or bonuses. you might be required to pay a portion into your IVA to uphold repayments aligned to your income levels.
What if you are a homeowner?
One advantage of an IVA compared to bankruptcy is that there is no forced sale of your home. In an IVA, creditors are more lenient unless there is enough equity to pay your debts in full. However, you might be required to release equity by re-mortgaging your property or extend your IVA for 1 year in lieu of equity release.
Additional things you need to know about:
- There will be no upfront fees charged. The Nominee’s fees and Supervisor’s fees are paid from your agreed monthly contribution. If you become able to repay your debts in full, the amount you would pay would include these fees.
- An IVA will stay on your credit report for 6 years from the date of approval, affecting your credit rating and your potential ability to obtain future lines of credit.
- An IVA is a legally binding contract with limited flexibility.
- You can’t get new credit for £500 or more once you enter in to an IVA without obtaining authorisation from your Insolvency Practitioner first.
- Your details will automatically appear in the Individual Insolvency Register. This is a public record of bankruptcies, IVA’s and other forms of debt relief/insolvency.
You can read more about an IVA on our dedicated page here. If you feel an IVA is something that you want to consider then call our friendly team on 0800 254 5112. Or visit our website for more contact details.