Consumers looking for debt management solutions have a range of options to choose from. In recent years, the IVA (Individual Voluntary Arrangement) has proved to be a popular solution to take. What are IVAs, who can use them and how do they work?
What is an IVA?
This debt management solution kind of works likes a bankruptcy but generally won't come with all of the negatives. The aim here is for the individual to come to an arrangement with their creditors to repay some/all of what they owe over a number of years. Most IVAs will last for around five years.
The individual will arrange to make a monthly repayment and/or a lump sum that go towards repaying their debts. Once the IVA's terms are finished, the individual will be debt free again. All of the debts bundled into the solution that remain unpaid will then be written off.
Who Qualifies for an Individual Voluntary Arrangement?
This solution won't suit every individual and those that do apply may need to meet the following criteria:
- They must owe at least £15,000.
- They must have at least two separate creditors and three debts or more.
- They are likely to be able to repay at least 20p for every £1 that is owed or to have around £200 a month to put towards debt repayment.
Those that can't meet these conditions may need to look for alternative debt management solutions.
How do IVAs Work?
This is a formal debt management solution that cannot be set up without the help of a specialist Insolvency Practitioner. The basic process is as follows:
- The individual finds and retains an Insolvency Practitioner to guide them through the application process and to work out a payment offer to make to creditors.
- Creditors are approached with the repayment offer. Based on the value of debts 75% must agree to the IVA being set up before it can be approved.
- If the IVA is approved then the Insolvency Practitioner will then manage the repayment process and deal with any issues that arise until it is finished.
Getting creditor approval may be the trickiest part of the process. Some creditors will view this as a way of at least getting some of their money back so may not have a problem approving it. Others may prefer to play hardball and to hold out for a better repayment offer or to try and force bankruptcy if they think they will get back more that way.
As with any debt management solution, the individual should think hard about the advantages and disadvantages before taking out an IVA. They may want to get independent advice on all of the debt management solutions open to them before choosing which one to go with.
Sources: www.direct.gov.uk, www.nationaldebtline.co.uk
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