An Individual Voluntary Agreement, also known as an IVA, is a legal agreement made between you and your creditors to repay your debts, and it is an alternative to declaring bankruptcy. While an IVA is a form of insolvency, it is different in several ways from bankruptcy. However, it is important to remember, that an IVA cannot be set up for student loans, fines (such as parking tickets or speeding fines for example) or child support.
IVAs should however, not be seen as an alternative to repaying one’s debts. It is always preferable to repay your loans and debts, rather than seeking an alternative arrangement such as an IVA. For example, you may have a few loans outstanding, such as credit cards, a payday loan and others.
Often, either consolidating these debts into fewer, more manageable repayments is preferable. However, it is also always worthwhile to speak to your lenders and debtors who can very often help you arrange a repayment plan and get you back on track, avoiding the potential of credit record tarnishing bankruptcy.
How do You Register an IVA and Arrange Payments?
An IVA must be set up by an insolvency practitioner, usually a qualified accountant or lawyer, who charges a fee of around £5,000. Your insolvency practitioner will arrange a repayment plan and send it to your creditors to be approved.
Repayments usually last for around 5 or 6 years and can be arranged in a way that either a portion of your salary each month or a lump sum is paid to your insolvency practitioner who then distributes the money to your creditors. This for many, is a much more manageable and affordable way of repaying outstanding loans and debts. It is important to understand that when you have an IVA, you are usually required to contribute any savings and bonuses toward repaying your debts.
Is an IVA Better Than Bankruptcy?
Although IVAs payment plans are longer than bankruptcy payments, there are some tangible benefits to choosing an IVA. Generally speaking, IVAs are much more discreet than bankruptcy. While bankruptcy can for example be published in local newspapers, an IVA appears publicly only in the Individual Insolvency Register. Additionally, an IVA will likely not affect your career.
Bankruptcy, on the other hand, may impact your eligibility in certain positions. IVAs also allow you to keep more of your assets than bankruptcy would allow. A person who has declared bankruptcy has to release equity over £1,000 and may have to sell his home. A person with an IVA does not have to sell their home and has to release equity over £5,000.
How Does an IVA Affect my Credit Score?
An IVA appears on your credit file for 6 years after the date of your commencement, even if you manage to complete your payments beforehand. As with bankruptcy and other similar arrangements, an IVA does negatively affect your credit score because it shows creditors that you have struggled to repay your debts in the past. Since creditors will be more hesitant to lend to you, you are also likely to have very little credit activity for 6 years which makes it difficult to improve your credit score during this time.
It may be the case however, that you are eligible for bad credit loans and so this should be considered if you require a short term loan during those 6 years of the IVA.
One way to improve your credit score is to repay the IVA, avoiding bankruptcy and having the IVA marked as completed on your credit file.
Hence, before arranging an Individual Voluntary Agreement (IVA), you should first understand the associated risks. You may have to remortgage your home or contribute your savings and personal pension payments. You may also have trouble borrowing money for proceeding years, and most importantly if you cannot keep up with repayments, a failed IVA can lead to bankruptcy and further financial woes.
In pressing financial situations, consider the benefits of taking a short-term loan with MoneyBoat. Short term loans are more expensive than ‘traditional options’ and borrowing money from your family and friends and they do not serve as a long-term solution for enduring financial troubles. However, our loans can help you get out of a pressing financial bind.