When is an IVA the best option?

18 January 2010

For people with unmanageable debt problems, an IVA (Individual Voluntary Arrangement) may be one option. An IVA is a legally-binding agreement with your lenders that enables you to repay as much of your unsecured debt as you can realistically afford within a set period of time (usually five years), after which your remaining unsecured debt will be written off.

However, an IVA is by no means the only option available to people with unmanageable debts - and you should make sure you explore all your options before making any decisions.

How do I know if an IVA is right for me?

This will depend on your circumstances. An IVA would only be suitable if you can demonstrate that you can`t afford to repay your debts within a reasonable period of time, but that you can commit to regular monthly payments (which would be lower than the total you`re paying towards your unsecured debts every month at the moment).

What other options are available?

There are a few alternatives to an IVA that may better suit your circumstances. You should always talk to an expert debt adviser before you decide on any particular approach to your debts, but here`s a quick rundown of some of the alternative debt solutions that may be available.

Debt management plan

An informal arrangement with your lenders in which you`ll repay your debts in smaller amounts over a longer period of time. This can make your debts manageable again, but as you`ll be paying interest for longer (unless your lenders agree to freeze it), you could end up paying more overall. Debt management could be more appropriate than an IVA if you can actually repay all your debt (but need your lenders to let you do it more slowly than originally agreed).

Bankruptcy

Another form of insolvency, in which you`ll apply to the courts to have your debts written off. Although many people feel there`s a stigma surrounding bankruptcy, it can actually be the best option in some people`s circumstances. For example, bankruptcy proceedings are usually over much more quickly than an IVA would be, and you wouldn`t necessarily need to commit to regular monthly payments. However, the impact on your credit rating will still be severe. Bankruptcy could be more appropriate than an IVA if you have high debts, few assets and a low income.

Debt Relief Order (DRO)

A relatively new form of insolvency designed to help people with low incomes and very little in the way of assets. A DRO does not require you to attend a court, like bankruptcy does, and it will not require regularly monthly payments, although you will be expected to pay an administrative fee of £90.

All of these approaches will affect your credit rating, as will an IVA, and all have their advantages and disadvantages. For more information, call one of our friendly debt advisers on 0800 074 8639.

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