The Pros and Cons of an IVA

by JT McGee

This is a guest post.

IVAs are fast, effortless and will get you out of debt in no time – right? If only things were that easy. True, Individual Voluntary Arrangements have quickly caught on with the public at large as a viable and necessary alternative to a formal bankruptcy procedure. But they are by no means an easy way out. Perhaps a better way of looking at them is to regard them as a refinement of the insolvency model rather than a replacement and as having their own benefits and disadvantages. To understand what makes an IVA both an attractive tool and an instrument to be wielded carefully, you’ll need to understand four fundamental aspects about the procedure.

An IVA has benefits over a bankruptcy
Applying for bankruptcy means acknowledging that you’re no longer able to pay your creditors. Applying for an IVA means you’re no longer able to pay your creditors the entire amount you’re owing them. There’s obviously a world of difference between the two: By applying for an IVA, you’re admitting your responsibility and taking the interests of your creditors into consideration. Consequently, an IVA is widely considered a less drastic and more constructive measure.

An IVA requires you to pay off a substantial part of your debt
Although an IVA is clearly more positive than an individual insolvency, you really need to be aware of what you’re agreeing to. By applying for an IVA, you are committing to a new payment plan and need to set yourself realistic financial goals. To make sure no one casually applies, the conditions for an IVA, in fact, specifically stipulate that you need to have at least £150 available each month to pay off your debts and the more you can muster, the greater the chances of your application being successful. Be aware that should you fail to meet these obligations, you may still have to apply for a bankruptcy after all.

An IVA has severe consequences
Even though an IVA is a great tool, it is also has some incisive consequences. Both bankrupts and those who are part of an IVA are listed publicly on the Personal Insolvency Register at www.insolvency.gov.uk, and will be recorded by credit reference agencies. This means that some of the negative consequences of a bankruptcy – such as a reduced credit-worthiness and even reduced career chances – also apply here.

An IVA is fair and transparent
Let’s not beat around the bush: An IVA is demanding. By no means does it represent an effortless way out of debt. By no means will it simply wipe the slate clean. And although it isn’t quite as harsh as a bankruptcy, it may nonetheless reduce your credit-worthiness in the future. Still, there’s a key benefit: You can expect an IVA to be fair and transparent: As long as you’re keeping to your side of the bargain, you’ll eventually be rewarded with your debt being written off at the end of the IVA term. It may take some effort to get there. But it’s definitely worth it.

You need to take the disadvantages of an IVA into account if its advantages seem attractive to you. Speak to an IVA expert to assist you with arriving at sensible decisions.

Photo by: quaziefoto

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