Many people believe that bankruptcy is the only thing that can solve their overwhelming debt problems. There is, however, another option that lacks the negative connotation that comes along with bankruptcy. Having a bankruptcy in your credit history can cause major problems, both personally and professionally. Securing or maintaining employment in civil service, the armed forces, or in the legal or financial field can be near impossible with a bankruptcy haunting your past. For those in other fields, there may be a clause in your employment agreement that lists bankruptcy as an offense worthy of dismissal. You may have heard someone talking about IVA’s, but have never known if it was the right option for you. If you are wondering “What is an IVA”? then read on for more information
What is an IVA?
If you are more than £15,000 in debt owed to more than a single creditor and have a source of steady income, you may want to consider an Individual Voluntary Agreement. Also known as and IVA, such an agreement is a legally binding agreement that is made between a creditor and a debtor via an Insolvency Practitioner. While you should not begin an IVA without careful consideration, they can be an incredible way to escape the cycle of debt.
Will I Lose My Assets?
One of the best parts about an IVA is that you get to keep your assets, including your home. Any asset that you own that is considered necessity for existence will not be taken away. You will, however, have to sell any extraneous assets, such as a second home. You may also be required to remortgage your home if it has any equity. Surprisingly, you also get to retain possession of any life insurance policies as well.
How Does an IVA Work?
Once begun, an IVA will cause all debts to be frozen. This means they will not accrue any interest or additional charges. Any legal proceedings regarding your debt will also be put to an end, pending the successful adherence to your IVA agreement. The payment plan created under an IVA will take into consideration only your disposable income. You are allowed to use your income for necessities such as rent, food, and necessary travel expenses. Expenses that are considered luxuries, such as gym memberships, clothing, and holidays are not allowed under an IVA.
You will begin to make monthly payments to your creditors, and during this time, they are no longer allowed to communicate with you demanding payment, as long as you are making your payments on time. Unlike bankruptcy, IVAs are not published in local newspapers or gazettes, so no one will find out about it unless you tell them.
How Will an IVA Get Me Out of Debt?
While an IVA may just seem like a structured payment option, it is quite different. In return for agreeing to make regular payments to an Insolvency Practitioner who divides the funds up to your various creditors, creditors will write off the remaining portion of your debt after the period of time that the IVA is written for. On average, creditors write off around 60% of debt via IVAs, although some of them will go up to 75%.