When you simply can’t afford to repay your debts in full, you’ll need to find a way of reducing the overall amount you’re required to repay – a way that your lenders can accept. One example of this may be an IVA (Individual Voluntary Arrangement).
An IVA is designed to enable you to repay what you can afford of your unsecured debts (credit cards, overdrafts, store cards, etc.), after which any remaining unsecured debt will be written off. So it can’t write off all your debt, but if it goes ahead (i.e. if you and your lenders can agree on the terms), it’ll make sure your debt repayments and other essential outgoings are made affordable.
Also – note that an IVA can’t write off secured debts (like your mortgage, if you have one).
What is an IVA?
An IVA, or Individual Voluntary Arrangement, is a legally-binding agreement with your lenders for reduced payments towards your debts. This will usually take place in the form of regular monthly payments over five years, although this can vary, depending on what you and your lenders agree.
Because it’s a legally-binding contract, your lenders will be unable to pursue you any further for the debts once your IVA has started. But this works both ways: you’ll be required to keep up with your payments, and if you can’t do so the consequences could be serious – the IVA may fail, for example, and you may need to declare bankruptcy.
Plus, note that an IVA will have a significant impact on your credit rating, and if you’re a homeowner, you may be required to release equity from your property so you can pay more towards your debts.
So you should only enter into an IVA if you’re sure it’s the right solution for you.
Who is an IVA best for?
You will only be eligible for an IVA if you can demonstrate that your debts are no longer affordable, and (in most cases) that you can commit to regular monthly payments (which would often need to be at least £200 a month, but that figure isn’t set in stone).
Even if you do meet these criteria, an IVA may not necessarily be the best option for you. It can be hard to decide – and it’s extremely important that you find the most appropriate way of tackling your debts – so always discuss your options with a debt adviser before you decide on any course of action.
For more information about IVA’s, Debt Advisory Centre
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