An IVA is an effective debt management solution for those struggling to make the minimum repayments on debts of £7,000 or more and looking for an alternative to bankruptcy. While an IVA usually takes five or six years to complete, it ensures you make regular, manageable monthly repayments and, at the end of it all, you should be debt free.
But what happens when you take on such a solution? Let’s take a look at the IVA process and how it all works:
Step One: You speak to a debt advisor
There are debt management companies out there, ready and available to offer free advice on your situation. They can discuss whether an IVA is for you and help you decide whether to go ahead.
Step Two: Take a close look at your finances
Sometimes, it’s easier to ignore your bank account and bury your head in the sand. But before you take on an IVA you must comb through your finances, listing the necessary income and expenditure costs and checking what is left over at the end of the month. Making yourself aware of your finances is a key step to regaining control of your debts.
Step Three: Work with a debt advisor to create a proposal
Once you have a good grasp of your finances and have selected a debt management service to work with, you will then be assigned an insolvency practitioner (IP) who will handle your ‘case’. They will ensure first that you qualify for an IVA and then look into how much you can afford each month – to pay back your creditors – after your living expenses.
Your IP will also take a look at your assets, such as any savings you may have or equity in your home and you will need to include these in your repayment. Be aware that you may have to remortgage your home to release any equity near the end of the repayment plan.
Step Four: Creditors review your application
Once your proposal has been submitted your creditors will then need to vote on whether to accept it. At least 75% in value of lenders you owe money to who vote on your IVA must say yes for the IVA to be accepted and if a certain lender is owed more money they will have more sway over the vote.
Step Five: Approval
Once creditors have approved you will start making your agreed monthly repayments. Your debt management company will do the rest and providing you keep to the agreement, at the end of the IVA the rest of your unsecured debt will be written off.
Some points to consider:
- If you have debts with your bank, they may decide to freeze your current account. It’s a good to create a safe bank account before you enter into an IVA so you have control of your income.
- Your IVA will remain on your credit report for at least six years after it is set up and will negatively affect your credit score. However, once you have completed the IVA you can begin taking on small amounts of credit again to build this score back up.
An IVA is an effective debt solution that will help you become debt free. It is important if you take on an IVA, you stick to the agreement and at the end of the agreement your unsecured debt will be written off.