An IVA, or Individual Voluntary Arrangement, is a formal debt solution available to residents of the United Kingdom who are struggling with unmanageable debts. It is a legally binding agreement between you and your creditors, which allows you to repay your debts in an affordable way over a set period of time, usually five or six years. In this article, we will explore the benefits of an IVA and how it can help you regain control of your finances.
- Write off a portion of your debts
One of the key benefits of an IVA is that it allows you to write off a portion of your debts. At the beginning of the arrangement, you will work with a licensed insolvency practitioner to assess your financial situation and determine how much you can realistically afford to repay each month. Once this amount has been agreed upon, your creditors will be asked to accept a reduced payment amount in exchange for writing off a portion of your outstanding debt. This can be a significant relief for those who are struggling with unmanageable levels of debt.
- Protection from creditors
When you enter into an IVA, you are protected from your creditors. They are no longer allowed to take legal action against you, and they cannot contact you directly to chase payment. This can be a huge relief for those who have been dealing with constant calls and letters from creditors, as it gives you the space you need to get your finances back on track.
- One affordable monthly payment
Another benefit of an IVA is that it allows you to consolidate all of your debts into one affordable monthly payment. This can make it much easier to manage your finances, as you only have one payment to make each month, rather than multiple payments to multiple creditors. Your insolvency practitioner will work with you to determine an affordable payment amount, and this will be distributed to your creditors on your behalf.
- Fixed repayment period
Unlike other debt solutions, such as debt management plans or debt consolidation loans, an IVA has a fixed repayment period. This means that you know exactly how long you will be making payments for, and you can plan your finances accordingly. Most IVAs last for five or six years, after which any remaining debts are written off. This can be a huge relief for those who have been struggling with debt for a long time, as it gives them a clear end date to work towards.
- Reduced stress and anxiety
Debt can be a major source of stress and anxiety, particularly if you are struggling to make your monthly payments or you are constantly being contacted by creditors. An IVA can help to reduce this stress and anxiety, as it provides a clear way forward and a manageable payment plan. Knowing that you are taking positive steps towards getting your finances back on track can be a huge relief, and can help to improve your overall well-being.
- Improved credit score
While an IVA will have a negative impact on your credit score, it is likely to be less severe than if you were to go bankrupt or have a County Court Judgment (CCJ) against you. Furthermore, once your IVA is complete, any remaining debts will be written off, which can help to improve your credit score over time. It is important to note, however, that an IVA will stay on your credit report for six years from the date that it is entered into. You can read more about the IVA rules for creditors here.
- Avoid bankruptcy
For many people, an IVA can be a way to avoid bankruptcy. Bankruptcy should always be a last resort, as it can have serious implications for your financial future. While an IVA will still have an impact on your credit score, it is likely to be less severe than if you were to go bankrupt. Furthermore, an IVA allows you to keep your assets, such as your home and your car, which is very beneficial