If you are struggling with an unmanageable level of unsecured debt that you can’t see yourself repaying within a reasonable period of time, you’ll want to find a solution to this – a way of clearing your debts so you can get on with your life.

In this situation, many people may (understandably) think of bankruptcy – and for some, that may indeed be the most suitable option. However, for many other people in debt, an IVA (Individual Voluntary Arrangement) may be a more appropriate solution. For a start, an IVA is extremely unlikely to end up with you losing your home.

What is an IVA & how does it work?

An IVA is a formal, legally binding agreement between you and your unsecured creditors in which you will repay an agreed amount of your total debt, after which the outstanding debt will be written off.

In most cases, an IVA involves you making regular reduced payments towards your debts over a five-year period. However, this may vary depending on the terms of the agreement and whether you miss any payments throughout its duration. The payments you make will be based on the amount you can afford after all your essential, day-to-day living costs (such as mortgage/rent, food costs and petrol) have been accounted for.

After you have made your final payment, and the remaining unsecured debt has been written off, you will be legally debt-free (as far as unsecured debt is concerned – an IVA cannot write off secured debts, such as your mortgage).

IVAs – points to consider

As with any debt solution, there are several points you must consider before entering an IVA – for example:
•    An IVA will leave you with very little money each month.
•    If your income increases while you’re on an IVA, you may be required to give up a portion of it.
•    If you’re a homeowner, you may be required to release some of the equity in your home during the final year of the agreement.
•    Finally, an IVA will have a significant effect on your credit rating, affecting your ability to obtain further credit for the next six years.

I’m unemployed – would an IVA be right for me?

An IVA involves committing to regular payments, which usually amount to at least £200 a month. This requires you to have a certain level of disposable income available each month to put towards your debts – which means that if you’re unemployed, an IVA is very unlikely to be right for you.

In this case, you may want to consider an alternative debt solution, such as bankruptcy or a DRO (Debt Relief Order).