Pros And Cons: Advantages And Disadvantages Of An IVA
This is a great starting point for anyone considering entering into an IVA.
Some of the IVA's advantages may be less relevant to your personal circumstances but, nonetheless, it's good preparation to make yourself familiar with them all.
Affordable payments: Your contributions into an IVA are based on affordability, rather than being based on a fixed payment for the particular amount you owe. This protects you from having to make payments into your IVA that you cannot afford to maintain, ensuring your IVA has the best chance of success.
Fixed duration: Your IVA will have a fixed duration, which is normally set to 5 years. This means there is a limited timeframe within which you must make payments then, under the terms of your IVA, any outstanding balances left unpaid when the IVA completes must be legally written-off.
Stops legal action: Once an IVA has been accepted by the required majority of your creditors, all creditors forfeit the right to take any further legal action against you for the recovery of your debt. This also includes those creditors that might have voted to reject your IVA at the creditors' meeting.
Stops interest charges: Your creditors are not permitted to add further interest charges once the IVA has been accepted at the creditors' meeting. This stops any of the debts included in the IVA from growing whilst the IVA is active, crystallising the outstanding debt level for the duration of the IVA.
Stops late payment charges: Your creditors cannot increase the size of your outstanding balance by adding late payment charges or fines, once the IVA has been accepted at the creditors' meeting. The IVA puts a legal obligation on each creditor to refrain from adding charges and fines to your debt level.
Stops creditor harassment: Once the IVA has been accepted at the creditors' meeting, all creditors must refrain from contacting you directly in relation to the recovery of any debt included in your IVA. Instead, they must address any questions and queries directly to your Insolvency Practitioner.
Provides debt forgiveness: You will only be expected to repay the amount of debt you can afford to repay during the IVA's fixed term, based on your IVA contributions. On the successful completion of your IVA any outstanding balances remaining unpaid by your IVA contributions will be legally written-off.
Protects homeowners: Under the terms and conditions of an IVA, your creditors cannot force you into selling your home, even if it has equity within its value. So long as you maintain your IVA contributions and fulfil your obligation by complying with the agreement, your home is safe.
Protects your income: An IVA acts to protect the ongoing income of those professionals to whom bankruptcy is prohibited, such as Accountants, Bankers, Solicitors, Senior Civil Servants, Police Officers, Armed Forces Personnel and others. As the IVA is not published in the London Gazette, it remains a private agreement between you and your creditors.
Peace of mind: Entering into an IVA can provide a great deal of stress relief from the pressure of being in debt. All your creditors are being dealt with by your Insolvency Practitioner and each is receiving a fair share of whatever you can afford to repay. An IVA also gives you the satisfaction that you are dealing with your debts with the agreement of your creditors.
You keep more control: An IVA allows you to retain more control over your financial affairs than would otherwise be the case if you were made bankrupt. You will be able to retain a vehicles with higher value than would be the case in bankruptcy, maintain ownership of any equity in your property and be able to maintain a basic bank account.
Getting a balanced view
We feel that it's crucial you obtain a balanced view of the IVA option, particularly if you're trying to establish whether an IVAs a suitable option for you.
So, with that in mind, here's a list of the most obvious disadvantages of entering into an IVA.
Fixed repayment schedule: Your IVA will be based on a predetermined repayment schedule and failure to maintain your IVA contributions at the expected level and time could be considered to be a breach of your IVA. There are exceptions that can be made, at your Insolvency Practitioner's discretion but, generally speaking, your IVA payments will form quite rigid schedule.
Damage to your credit rating: If you enter an IVA your credit rating will be damaged for a period of 6 years, starting from the creditors' meeting date. During the IVA you will be legally obliged to refrain from seeking any credit facilities but, in 5 years when your IVA completes, your credit rating will still be impacted for a further full year.
Formal terms and conditions: As with any formal agreement, there are terms and conditions that you must adhere to in order to keep your side of the bargain. By entering into an IVA you voluntarily agree to be bound by its terms and conditions, which define the expectations placed upon you during the IVA.
Subjected to regular reviews: Each year your financial circumstances will be reassess, to see whether you can afford to increase your IVA contributions. If you can afford to repay more, you will be expected to do so and failure to comply might result in your iVA being failed.
Paying in windfalls: If you benefit from a windfall during your IVA you will be expected to introduce the full value of the windfall for the benefit of your IVA creditors. A windfall could be any amount of money that you did not expect to receive, such as a lottery win, an inheritance or an insurance payout.
Equity clause: Homeowners will need to make themselves familiar with the 'Equity Clause' before they commit to an IVA. The Equity Clause details the process by which homeowners must try to release some equity from their property and introduce it into the IVA for the benefit of their creditors. Although there are limiting factors placed on creditors' expectations, you should make sure you understand what will be expected of you.
If you would like to discuss your circumstances with an IVA specialist, to learn more about how these different points might be relevant to you, simply call our IVA helpline on 0800 088 7502.