Individual Voluntary Agreement (IVA) is a formal agreement between you and your creditors to pay off your debts over a period of time. This legally binding agreement is a debt solution that is becoming increasingly popular among those in financial difficulty. In this article, we will discuss what IVA is, how it works, and its advantages and disadvantages.
What is an Individual Voluntary Agreement (IVA)?
An Individual Voluntary Agreement (IVA) is a formal, legally binding agreement between you and your creditors to pay off your debts over a specific period of time. It is designed to help you avoid bankruptcy and write off some of your debts. The agreement is set up and administered by a licensed insolvency practitioner who acts as a mediator between you and your creditors.
How does an IVA work?
An IVA is a debt solution that is available to any individual who owes more than £7,000 in unsecured debt to two or more creditors. Once you have determined that this is the right option for you, you will work with an insolvency practitioner to create a proposal for your creditors. This proposal will outline how much you can afford to repay each month, how long you will be making payments, and how much your creditors will receive.
Your insolvency practitioner will then present this proposal to your creditors, and they will vote on whether they accept it or not. If a majority of your creditors agree to the terms of the IVA, then it becomes legally binding for all parties involved. This means that you can make payments according to the agreed upon plan until all of your debts are paid off, usually within five to six years.
Advantages of an IVA
One of the main advantages of an IVA is that it can help prevent bankruptcy. Bankruptcy can have severe consequences, including losing your home, car, or other assets. An IVA provides a better solution that allows you to retain your assets while still paying off your debts. Additionally, an IVA can help reduce the amount of interest you pay on your debts and can also freeze any collection activity by your creditors.
Disadvantages of an IVA
An IVA is not without its drawbacks. One of the most significant is that you will have to have a regular income and be able to make monthly payments. If you fail to make your agreed upon payments, your IVA may be terminated, and you may be forced to file for bankruptcy. Additionally, an IVA will negatively impact your credit score, making it difficult to obtain credit in the future.
Conclusion
An Individual Voluntary Agreement (IVA) is a formal agreement between you and your creditors to pay off your debts over a period of time. Although it is not without its drawbacks, an IVA can be a useful solution for anyone struggling with overwhelming debt. If you are considering an IVA, be sure to work with a licensed insolvency practitioner who can guide you through the process and provide you with the information you need to make an informed decision.