• Have an unmanageable level of unsecured debt that they can’t afford to repay, but…

• Can commit to making regular reduced payments for – in most cases – 5 years.

Please note that entering an IVA would show up on your credit report for 6 years and affect the availability and/or cost of credit for this time. Plus, if you’re a homeowner, you might have to release equity from your property in the final year of the IVA. It is important to note that the terms of your IVA will place restrictions on your ability to obtain further credit.

In general, an IVA will last for a total of 5 years (60 months). You would be required to pay your ‘disposable income’ to your IP (Insolvency Practitioner), who would subsequently distribute money amongst your creditors according to how much you owe each of them (this is called a pro rata payment).

If you can stick to your side of the terms for the duration of the IVA, your unsecured creditors will write off any outstanding debt at the end.

However, in these uncertain times, no-one can guarantee that their financial situation will stay the same for 5 years – an unexpected change to your circumstances may take place, which could affect your ability to make payments to your IVA. If this was to happen, you may want to look into an IVA variation.

What is an IVA variation?

As you may be aware, your Insolvency Practitioner will be responsible for representing and supporting you throughout your IVA – acting in the best interests of both you and your creditors. If your circumstances were to change during the agreement, this may involve negotiating for an IVA variation.

An IVA variation is a new proposal detailing the changes that your IP thinks will need to take place to the manner in which you’re repaying your debt, to take into account your new circumstances – and help you bring the agreement to a successful conclusion.

How does an IVA variation work?

If your IP believes that an IVA variation is the most appropriate option, they will work with you to draw up a new proposal, which will be sent to your creditors.

Your IVA variation must be approved in much the same way as your original IVA proposal – in other words, voting creditors accounting for at least 75% of your debt would have to accept the terms before it could go ahead.

Sometimes, an IVA variation will be rejected by creditors. If this happens, and you know you are able to continue with the IVA (but under different terms), you can send an alternative IVA variation to your creditors. However, if you aren’t able to continue with the agreement, the IVA will fail. In this case, you may be advised to look into a different debt solution, such as a debt management plan or even bankruptcy.

Well, it depends on your circumstances. In short, if you are struggling with an unmanageable level of debt that you can’t afford to repay, but that you can commit to making regular reduced payments towards, an IVA may be suitable for you.

If you aren’t able to commit to making any payments, and don’t think you’ll be able to repay your debts, bankruptcy may be the right way to clear your debts.

IVAs and bankruptcies are both forms of insolvency and have significant consequences – such as damage to your credit rating. To find out more about the debt solutions that could help you clear your debts, you should seek professional debt advice.

However, it’s important to note that an IVA will not be suitable for everyone. It’ll affect your credit rating and may require you to release equity if you own your own home.

What’s more, there are several things that must happen before an IVA can even begin. For example:

•    An IP has to assess your situation and decide whether an IVA would be appropriate for you.
•    If they believe an IVA is right for you, and you decide to go ahead with it, voting creditors accounting for at least 75% of your unsecured debt would have to agree to the terms of the agreement before it can start.

You will need to tell them that the repayments are too high, and you simply can’t afford them.

Depending on your situation, they may agree to give you a short ‘break’ from your payments, or they may suggest an IVA variation.

An IVA variation basically involves a change to the terms of your agreement, and has to be approved in the same way as your original agreement (voting creditors accounting for at least 75% of your overall unsecured debt would have to approve for it to become binding).

Well, in simple terms, you will still need to pay as much as you can towards your IVA. The only difference is, this amount will now be more – so you will need to notify your IP (Insolvency Practitioner) and tell them how your circumstances have changed.

Your monthly repayments will be recalculated and will increase – you’ll have to put some of the ‘new’ money towards your debts as well.

If, on the other hand, you have received a one-off bonus, you will be expected to pay most of this towards your debts in a single payment.

An IVA is a legally binding debt solution – a formal agreement between you and your unsecured lenders. Typically, an IVA will last for five years, during which time you’ll be expected to pay as much as you can afford towards your debts on a monthly basis. Any outstanding unsecured debt will be written off once the IVA comes to a successful conclusion.

If you are a homeowner, you may be required to free up some of the equity in your home during the 54th month of the agreement – this money will be used to repay more of your debt. And please note that entering an IVA will make it more difficult to obtain further credit for the next six years.

To find out if an IVA may be right for you, you should seek professional IVA advice.

Providing you can commit to making regular reduced payments for the duration of the agreement (usually five years), you may find that an IVA is the most suitable solution to your debt problems.

Bear in mind, though, that entering an IVA will have an effect on your ability to obtain further credit for 6 years from the time it begins. And if you are a homeowner, you may be required to release some of the equity in your property during the final year of the agreement.

However, your payments will be calculated to be affordable – and once your IVA draws to a successful close, any outstanding unsecured debt will be written off.

An IVA will last for – in most cases – five years. But what actually happens once you have made your final payment?

Well, providing your IVA has drawn to a successful close, any remaining unsecured debt will be written off by your creditors and you will be legally debt free, as far as your unsecured debts are concerned.

However, it is important to note that the IVA will remain on your credit report for another year – which will have an impact on your ability to obtain credit for this time.

You’ll make regular monthly payments to your IP (or Insolvency Practitioner), who oversees the arrangement and the month-to-month running of your IVA. They will distribute money between your lenders as agreed.

Your monthly payments will be calculated by looking at what you can afford after your essential costs (such as mortgage/rent, bills & groceries) have been covered. You’ll be expected to pay as much as you can at all times, and if your income changes, your payments may change accordingly.

On successful completion of your IVA, your remaining debt will be written off and you’ll be legally debt-free (in terms of unsecured debt – an IVA can’t write off secured debt, like a mortgage).

An IVA is not an easy way out of debt, however – it requires real commitment, it’ll have a big impact on your credit rating, and if you’re a homeowner you may be required to release some of the equity in your home towards the end of the IVA.

Is it right for me?

IVAs are designed for people who can’t afford to repay their debts. If you believe you’ll be able to repay your debts in full over time, you may want to consider another debt solution, such as a debt management plan.

But if your situation is so serious that your debts just aren’t affordable, and you don’t think bankruptcy is right for you, an IVA could be your best route to becoming debt-free.

Well, the truth is, neither debt solution is ‘better’ than the other. They are both designed to do the same thing – help people get out of debt – but they do it in different ways.

The real question you should be asking is: Which one is better for me?

Which one is better for me – bankruptcy or an IVA?

To find out which debt solution is ‘better’ for you, you should contact a professional debt adviser. They will need to ask you a number of questions to establish which solution suits your situation better. For example:

1.    Are you employed?

2.    If so, is your job secure?

3.    How much unsecured debt do you have?

4.    Are you nearing retirement age?

5.    Do you own any property?

In most cases:

•    Someone with a low/unreliable income and large debts may be better off looking into bankruptcy, whereas
•    Someone with a reliable income and substantial assets may be better off looking into an IVA.

IVA vs. bankruptcy – why are they compared?

IVAs and bankruptcies are often compared… but why?

•    Both are a kind of insolvency.

•    They both allow you to write off debt.

However,

•    They both reduce your ability to borrow while they’re underway.

•    They will both affect your credit rating for six years, which could affect the cost and/or availability of credit for this time.

Could bankruptcy be the most suitable solution for me?

Depending on your situation, bankruptcy could be the most suitable way for you to clear your debts -  ask yourself some simple questions:

1.    Are my finances unlikely to improve in the near future?

2.    Do I have a low/unreliable disposable income?

3.    Am I a tenant with no valuable assets?

If you can answer ‘yes’ to the questions listed above, bankruptcy could be right for you. However, even if you can answer yes to these questions, you should always speak to a professional debt adviser.

Could an IVA be the most suitable solution for my debts?

If you have answered ‘no’ to the questions listed above, you may find that an IVA is the most suitable solution to your debts – but only if:

1.    You are struggling with an unmanageable level of unsecured debt.

2.    You can’t afford your monthly repayments.

3.    You could commit to making regular reduced payments.