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When does an IVA begin to protect me?

31/07/2009

An IVA (Individual Voluntary Arrangement) can help people clear unmanageable debts that they can no longer see themselves ever repaying.

Not only does it lay out a structured and manageable plan for repaying as much of your debt as you can afford, but it also offers protection against any (further) action from your lenders.

How an IVA works

Before you can enter into an IVA, you`ll need to work with an Insolvency Practitioner (IP) to draw up an IVA proposal, detailing the proposed terms of your IVA. This will be sent to your lenders, who will be given a minimum of 14 days to consider the proposal and `vote` for or against it.

At the end of this period, a `creditors meeting` will be held - a short period of time in which you and your IP must make yourselves available to discuss the proposed terms of your IVA with your lenders, if they have any queries or want to request any changes.

If your lenders suggest any changes to the terms, you can accept these changes, negotiate further or decide not to go ahead with the IVA.

If the IVA is approved, you will, in most cases, start making regular monthly payments to your IP, who will distribute the specified amounts to each of your lenders as agreed. This normally continues for five years. On successful completion of the IVA, you will be legally debt-free.

There are a couple of things to consider with an IVA, though: you will be expected to pay as much as possible towards your debts (once your essential commitments have been covered), and you may be expected to give up a portion of any increase in your earnings (a payrise, for example) while the IVA is ongoing. If you`re a homeowner, you may also be expected to release some of the equity in your home in the 54th month of the IVA.

How does an IVA protect me?

You will be protected under the terms of your IVA as soon as it has officially started. This means that your lenders cannot take you to court over the debts (unless you fail to stick to the terms of the IVA).

The terms of an IVA will be `set in stone` from day one (unlike a debt management plan, which is an informal agreement whose terms can be changed when they come up for renewal). You`re also very unlikely to lose your home (unlike with bankruptcy, which could well force the sale of your home). Be aware, though, that an IVA will stay on your credit report for six years from the time it starts.

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