IVA: pros and cons

28 November 2008

If you have total debts of over £15,000, it can seem like there will be no end to your money worries – other than bankruptcy. Fortunately, you have an alternative: an IVA (Individual Voluntary Arrangement).

An IVA is widely considered a preferable alternative to bankruptcy, as it avoids many of the issues bankruptcy can bring. However, as with any major financial decision, it’s well worth ensuring you know exactly what is involved.

Here we take a look at the pros and cons of IVAs to help you decide if it is the right debt solution for you.

IVA: Pros

• Affordable repayments. On an IVA, your monthly payments will be calculated based on an amount you can afford each month, taking into account your other expenses. This will normally continue for five years, after which your remaining debt will be considered settled.
• Freeze on interest & other charges. Once the IVA terms have started, you will incur no further interest and your creditors will no longer be able to issue any other charges.
• Legally binding. You have the security of knowing that once the terms of your IVA start, they will remain the same and your creditors cannot change their minds. If your circumstances change, however, you may be eligible to apply for an ‘IVA variation’ – a change in your repayment terms.

IVA: Cons

• Lasts for five years. Although this is likely to be much shorter than if you had repaid the debts in full, it lasts longer than bankruptcy. A bankrupt is normally discharged within 12 months, although payments will often continue for a period of three years.
• Repayments typically higher than bankruptcy. People on an IVA will typically repay a higher proportion of their debts than those who go through bankruptcy.
• Equity release. If you are a homeowner, you may be forced to release some of the equity in your home in the fourth year of your IVA, which will either extend your mortgage term or will increase your monthly payments.

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