What is an IVA and is it right for me?

If you’re struggling to pay off your debts, you may have heard about Individual Voluntary Arrangements – or IVAs; but what is an IVA exactly?

Simply put, IVAs are there to help people who are deeply indebted but who wish – or need – to avoid bankruptcy. The IVA was established by Part VIII of the Insolvency Act 1986 in the United Kingdom.

It’s a formal and contractual arrangement with your creditors which can be flexible to reflect your individual circumstances. An IVA is essentially a repayment arrangement between you and your creditors and is legally backed. It has several advantages over bankruptcy – not least the avoidance of high costs which is beneficial to both sides (i.e. you and your creditors).

An IVA isn’t the same as bankruptcy, though it is still overseen by the court and is a formal, legal process. But unlike bankruptcy, your details aren’t published in any newspapers and you aren’t forced to sell your assets. Furthermore, an IVA doesn’t affect professional status in any way.

Your lenders normally prefer an IVA arrangement to bankruptcy as the latter is costly, and it takes a lot longer as a rule. Also – with bankruptcy, a lot of money goes in professional fees – so creditors will normally accept less than the total amount you owe as the more expensive bankruptcy is usually the alternative.

IVAs last for a maximum term of five years. They can include debts owed to banks and finance companies – or on credit cards, as well as money owed to HM Customs & Excise (VAT), the Inland Revenue, and any loans which have been made to you by your friends and family. On the other hand, IVAs cannot include mortgage debts, hire purchase debt, student loans, any outstanding fines, debts incurred via fraud, or any maintenance and child support arrears.

An IVA is usually a good arrangement for working people with debts over £15,000 which are owed to three or more creditors.

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