Write off the debt you can`t afford with an IVA

6 May 2009

If you have got to the point where you can no longer see yourself being able to repay your debts, bankruptcy might seem like the only way out.

However, many people in this situation could be better off with an IVA (Individual Voluntary Arrangement). An IVA allows you to avoid bankruptcy by agreeing to repay as much of your unsecured debt as you can over a period of time (normally 5 years), after which the remaining debt will be written off.

Why choose an IVA?

An IVA offers debt relief for people who thought their debts had simply grown too big to manage, whilst avoiding some of the downsides of bankruptcy.

For example, whereas bankruptcy will almost certainly force the sale of your home (if you are a homeowner), an IVA should not. An IVA should also not impose any restrictions on your access to future credit once it has gone from your credit report (a year after the IVA finishes).

However, there are several things to consider with an IVA. You will need to commit to making fixed monthly payments throughout the IVA - as much as you can afford after your essential expenditure (mortgage/rent, utility bills, food, etc.). You`ll also need to contribute around half of any `extra` income (e.g. salary rises or bonuses) during the course of your IVA. And if you are a homeowner, you will be expected to give up some of the equity in your home half way through the final year of your IVA.

What other debt solutions should I consider? Everyone`s situation with debt is different - and it may well be that an IVA does not turn out to be the best option for your circumstances.

In particular, if you are not a homeowner, you may stand to lose much less by simply petitioning from bankruptcy. A professional debt adviser can help you to decide whether this is your best option.

Similarly, if your debt adviser can work out an affordable repayment plan, a debt management plan may be your best option. Your debt adviser may be able to negotiate for a reduction or freeze in interest and other charges which could reduce the overall amount you will be expected to pay, and a debt management plan will not affect your credit rating to the same extent as an IVA or bankruptcy.

Back to debt consolidation blog home