Similar to anything else in life, IVAs have their own set of pros and cons.
When you know about them it will assist you in understanding your situation better and help you to make a more informed decision on whether you should be applying for one or not. Find out more about an IVA.
Today, we will be covering the advantages and disadvantages of an IVA and how to assess each to decide whether an IVA is a right choice for your current circumstances.
Advantages
When you enter an IVA, it will ensure that your charges and interest that are over and above your debts are frozen. On approval of the IVA, all your charges and interests on all your debts will be frozen. This does away with worrying about the amount owing increasing or having a late payment charge added on to what you already owe. This is one of the important factors since most IVAs last for a long time (usually 5 years). If the interest rates continued to increase over a 5-year period, you would be liable for a lot more money due to all the interest.
An IVA is also relatively affordable when compared to a range of other options that you might be considering. Another advantage of an IVA is that an insolvency practitioner will work with you to ensure you are dealt with in a fair manner. You won’t have to worry about the pressures placed on you to pay an amount you cannot afford, since an insolvency practitioner can help to make sure this does not happen. You will be asked to make monthly payments that are affordable and within your budget. Upon completion, all your unsecured debt is going to be removed. An IVA can also provide a shield from creditors that want to take further legal action, such as filing a court application or filing for bankruptcy for the payment default. You also won’t be required to deal directly with your creditors anymore, since your IP will do this on your behalf.
An Individual Voluntary Arrangement is an agreement that is legally binding which means you are legally protected. This also means that you and your creditors will be obligated to abide by this contract. Once the IVA is approved, each of your creditors is bound by the terms stated in your IVA proposal. This will mean that they won’t be permitted to try and contact you or try and persuade you into making repayments that fall outside the monthly payments that were agreed upon. They also won’t be allowed to approach the courts for a CCJ, which may lead to bailiffs.
An IVA can be used to protect all your assets. Your property and the car that you own that you might be using to commute to your place of work or run a business will also be protected. You will also shield yourself from requests to sell these assets or remortgage them. However, you should be aware that some homeowners are requested to use equity associated with their properties when the IVA is coming to an end.
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Disadvantages
An IVA might appear to be an inviting option up to now, yet you must be aware of some of the setbacks of an IVA as well. Here is a list of them below.
An IVA will have a very negative impact on your credit score and rating. The IVA will appear on your credit file while having a negative impact on your credit rating at least 6 years after it commenced.
Your name will also appear on the Individual Insolvency Register. This is a database that is public that will show that you took out an IVA. This is something that is available publicly to lenders. A poor credit score along with your name appearing in the Individual Insolvency Register will also mean that you will find it hard to secure all types of credit while you have an IVA in place.
It is important to be mindful that the IVA will not only affect all your financial transactions and you while it’s in place, but it will also impact you for a few years once it has come to an end.
There are a few debt types that cannot be included in your IVA. These include social fund loans, court fines, child support, and student loans. IVAs are geared towards unsecured debts such as credit card debts and utility arrears.
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Make sure you have checked on the debts that will be covered and if your debts will qualify. Your insolvency practitioner can assist you with this along with any other IVA advice.
As mentioned above, homeowners can be asked to use equity from their homes when the IVA is coming to an end.
There will be restrictions placed on the way you bank. During the course of an IVA, only a very basic bank account will be allowed. This means no overdraft accounts, checkbooks, or credit cards.
It might be a difficult task to get each of your creditors to actually agree to the terms set forth in your IVA proposal. You need to know that creditors are not under any obligation when it comes to accepting the proposal. If you have creditors that are refusing the initial proposal, you might be forced into conceding to the changes they have suggested, or it might mean you are no longer interested in undergoing an IVA.
An IVA has a “windfall clause”. Windfalls are classified as large sums of money, that you might come upon unexpectedly during your IVA. Examples of these windfalls may include money you have inherited, winning money through the lotto, etc.
If there is an IVA in place, you will be obligated to hand over 100% of the windfall sum to creditors to assist with paying off any remaining debt. This will also not affect your monthly IVA payments in any way. You will still be required to carry on with your monthly payments based on the terms of the contract.