IVA Pros and Cons

1. You only pay what you can afford

Your day to day living costs will be taken into account before the payment to your IVA.

2. It protects your assets

Assets such as your home or vehicle are usually protected during an IVA, meaning that you are able to retain these, provided they are of a reasonable value.

3. Creditors cannot harass you for payment

Once creditors have agreed to your IVA proposal, they are legally bound by the arrangement and can no longer contact you directly to request payment. However, you will have to deal with your Insolvency Practitioner and their staff who will administer the IVA and will deal with creditors on your behalf.

4. A fixed, reliable payment

You will make an affordable repayment to your debts in the knowledge that your debt amount is fixed. Creditors cannot make additional charges or add more interest to your debts once the IVA is approved.

5. It writes off debt

Most IVAs last five to six years. After successful completion, any remaining unsecured debt will be written off.

6. Interest rates and charges are frozen

Once the IVA is approved by creditors interest and charges are frozen and cannot be added to the debts by your creditors. This helps prevent the debt from increasing further.

7. A legally binding solution

An IVA is legally binding, which means once approved, both you and your creditors must follow the agreed terms.

8. Protection from bailiffs and other legal action

As long as you stick to the terms of your IVA, creditors are not allowed to take legal action against you. This includes sending bailiffs to reclaim debt.

9. Reduced social stigma

Although the topic of debt should not be a taboo generally, it may be an IVA is generally viewed better than some of the alternatives, such as bankruptcy.

10. Better employment options

Although some occupations won’t allow employees to join them if those individuals have been made bankrupt, the same typically cannot be said of an IVA. We would advise to check your employment contract if you were concerned that there may be any effect on your job.

1. Your credit rating will be affected

An IVA will negatively impact your credit rating. An IVA will be registered on your credit file and will usually remain there for six years from the date of approval. As an IVA usually lasts for five years, it means that is it likely to remain on your credit file for a further year after successfully completing the IVA. As a result, you will probably find it hard to obtain future loans or other financial products.

2. An IVA is not private

Once an IVA is approved by creditors, it is listed on a public database called the Insolvency Register. This is searchable by anyone. Although, in practice, few people are actually going to use this system.

3. You will need to follow a strict budget

Payments to the IVA must be made. Although the agreement is somewhat flexible, you will need to budget for the next few years to ensure that you continue making repayments.

4. If you’re a homeowner, you may need to release equity from your home

You may be required to release equity from your home as part of the agreement. If this isn’t possible, the length of your IVA might increase from five years to six. However, an IVA may still be suitable for you if you owe money to more than one creditor or have accumulated at least two debts. If your debts total more than £6,000 or you do not wish to deal directly with your creditors, an IVA could be ideal.