Guide to IVAs and dealing with unmanageable debt

If you are struggling with an unmanageable level of unsecured debt, you may be wondering what you could do.

It is important to understand that there is help available. An IVA (Individual Voluntary Arrangement), for example, is specifically designed to help people clear unmanageable debts.

What is an IVA, and how does one work?

An IVA is a legally binding debt solution between a borrower and their unsecured creditors. If they can agree on the terms of the agreement, the borrower will commit to making regular reduced payments for - in most cases - five years. The creditors will agree to not enter into/pursue any legal action against the borrower while the IVA is underway, and to write off all outstanding debt once the IVA has come to a successful conclusion.

For an IVA to go ahead, voting creditors who 'own' 75% of your debt or more have to agree to the terms of the agreement - if they do, the IVA will become legally binding on everyone… including any lender who chose to vote against it, or who did not vote at all.

Once the IVA is underway, you will make a single payment each month, to your Insolvency Practitioner (IP) - the qualified expert who will deal with your case. They will subsequently pass on the agreed amounts to each of your lenders (on a pro rata basis).

Please bear in mind that your monthly payment will be based on the amount you can realistically afford to pay once your essential expenses (mortgage/rent payments, utility bills, for example) have been taken into account.

In general, your IVA payments will go on for five years. And if you're a homeowner, you may be required to release some of the equity in your property in the 54th month of the agreement, so you can contribute more towards your debts.

Once you have honoured your commitment to your IVA (in other words, once you've repaid all the money you've agreed to), your IVA will come to a successful conclusion, and your unsecured lenders will write off any outstanding debt.

Note that your IVA will, however, stay on your credit report for one year after it comes to a successful close - which will affect the cost and/or availability of credit for this time.

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