Advantages & Disadvantages of an IVA?

What Are The Pros And Cons?

So you're thinking about getting an IVA.

You may have already spoken to someone and are sure it's right for you.

But like most important decisions in life, there are advantages and disadvantages to consider.

These pros and cons need to be weighed up in terms of how an IVA will work for YOU in your situation.

Advantages Of An IVA?

Below is a list of some of the bigger IVA Pros:

• Debt Free In 5 Years
  Your IVA will last for a fixed period of time, normally no longer than 5 years.

• You Only Pay What You Can Afford Each Month
  In an IVA you only pay what you can afford each month after all your living expenses have been taken into account.

• No More Creditor Hassle
  Once you are in an IVA your creditors must stop any contact with you demanding payment. So phone calls, texts, letters, e-mails all STOP. It also stops bailiff and Court action, so you no longer need to worry about lenders visiting your home or taking Court action against you.

• All Interest And Fees Are Frozen By Law
  Once your IVA has been set up, your creditors can't add charges or interest to any of your debts included in the IVA. So your debt can not continue to increase and spiral out of control.

• Your Home Is Safe
  In an IVA you can not be forced to sell your home to pay your debts. You may have to release some money through a remortgage towards the end of the IVA, if that is possible.

• You Can Keep Your Car & Other Assets
  As long as you can prove that you need your car then you can keep it in an IVA. This can include cars on finance, as long as the costs are reasonable.

• Unaffordable Debt Is Written Off
  When you complete your IVA (i.e. you've made your 60 monthly payments), the balance of what you owe your unsecured creditors included within the IVA is written off. You are debt free and don’t have to keep paying your debts every month without an end in sight like many other debt payment plans.

• Flexibility
  Life is complicated, and a lot can change over the 5 years of an IVA. If something happens and you cannot keep up with your payments, your IP can arrange for you to take a payment break for a few months, or go back to creditors and ask them to vary the terms of the arrangement.

• Privacy
  An IVA is private arrangement between you and your creditors. It is not advertised in the paper, like bankruptcy. Your employer and landlord will not be told about it, unlike bankruptcy. Details of you IVA will be available on the Insolvency Register .

• Creditors Also Benefit
  Creditors benefit from IVAs as well as you, as they usually get more money back than if you went bankrupt.

Disadvantages Of An IVA?

Below is a list of some of the bigger IVA Cons:

• Not All Debts Can Be Included In An IVA
  Student loans, child support and maintenance, Magistrate Court fines, social fund loans and secured loans are excluded from an IVA, but an allowance can be made to allow you to continue repaying these debts.

• You Need To Owe Over £5000
  You can only have an IVA if your total unsecured debt is more than £5,000. You will also need to be able to afford a monthly payment of at least £80.

• You Can't Borrow Money
  While you are in an IVA you are not allowed to borrow any money without the permission of your IP. So you can't continue to use credit cards, store cards, catalogues or overdrafts. You can use prepaid card.

• You Might Have To Get Rid Of Some Assets
  Part of your IVA agreement is that any assets over and above those needed for day-to-day living will be sold and use to repay some of your debt. A good example of this would be a holiday caravan. Nice to have but not essential.

• You May Have To Release Equity In Your Home
  If you have a large amount of equity in your home your IP will expect you to release some of it to pay to your creditors. This may be at the beginning of the IVA or, if you do not have enough equity or are in negative equity, at the end of the IVA as your home could have gone up in value over the 60 months.

• You Must Include All Creditors
  All your unsecured creditors must be included. For Example, you can't put your credit cards into an IVA and keep your overdraft or catalogue.

• An IVA Lasts Longer Than Bankruptcy
  An IVA will usually last for 5 years compared to bankruptcy which will normally only last for 1 year unless you have a income payment order and this will last 3 years.

• Windfalls Or Inheritance
  If you get a windfall or inheritance over and above £500 during the term of the IVA then the money must be paid into your IVA.

• You Need To Stick To It
  Once your IVA is set up you must stick to the monthly payments. If you fail to make the payments due under the terms of your IVA, then your arrangement could fail and your creditor may force you into bankruptcy.

• Credit Rating
  Your credit rating will show that you are in an IVA for 6 years after it is accepted. This is unavoidable, as all financial transactions involving credit and creditors are detailed on your credit record. However, there are ways to improve your credit rating quickly once your IVA is complete.