I`m in debt - should an IVA be my first option?

2 December 2009

It can be hard to know what to do when you find yourself struggling with unmanageable debt. There are a range of options available, each of which can help with different circumstances and different levels of debt.

One option for people with high levels of debt may be an IVA (Individual Voluntary Arrangement).

Introduction to IVAs

An IVA is a legally-binding debt solution in which you`ll agree with your unsecured lenders to repay as much of your debt as you can afford over a set time period - after which your lenders will write off what`s left.

Most IVAs involve making monthly payments towards your debts for five years - although the timescales can vary based on your circumstances, as well as what your lenders are willing to agree to. Your payments will be based on how much you can afford once your essential expenses (mortgage/rent, bills, tax, etc.) have been covered. On successful completion of these terms, you will be legally debt-free (as far as your unsecured debts are concerned - your IVA wouldn`t write off your mortgage debt, for example.)

Keep in mind, though, that you will only be eligible for an IVA if you can demonstrate that you can`t afford to repay your debts in full within a reasonable period of time. Also remember that it will have a significant impact on your credit rating, which will make borrowing money more difficult for six years from the time your IVA starts.

Should an IVA be my `first option`?

It all depends on your situation. IVAs are right for some people, but it`s essential that you consider your options carefully before making a decision.

An IVA may be suitable for someone with substantial debts, who can`t afford to repay them in full, but who can commit to regular monthly payments towards them. But that doesn`t mean everyone in this situation should choose an IVA. Bankruptcy might suit some people better, for example.

Similarly, your lenders won`t accept an IVA if they can see that you will be able to repay the debt in full over the next few years. In a case like this, a debt management plan might be more appropriate if you can`t keep up with your repayments.

It can be difficult to know which debt solution is right for you, which is why speaking with a debt adviser is so important. For more information on IVAs and a range of other debt solutions, click here or call 0800 074 8639.

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