Would Getting into an Individual Voluntary Agreement be the Right Decision?

Unpaid debt can bring a lot of stress into your life, especially if you’re having trouble repaying it. In some cases, you might even have insufficient money to pay off the debt. This situation is faced by many people every year in the UK. 

If you’re unable to pay the debt even after being repeated reminders, then you might face legal action, and this could lead to bankruptcy. Now, if you’re a business owner, this could have many bad implications for you. So, you might want to avoid this at any cost. 

If you’re a UK resident, you can easily get debt-free by getting an individual voluntary agreement or IVA. Are you wondering — is an IVA a good idea? Then, read to know more about this arrangement and how it works. 

How does an IVA Work?

An IVA is an arrangement that allows you to pay your debts in monthly instalments. That makes it easier for you to clear your debts. Most importantly, this agreement is formal by nature, which means it’s terms are legally protected, provided that the creditors have agreed to it. 

It also indicates that you can’t manage this arrangement by yourself and must hire an Insolvency Practitioner (IP). This person is liable to deal with your creditors and manages all the payments you make to them. Typically, you would have to pay the fees of your IP instalments along with the debts. 

During the arrangement period, you have to stick to a budget prepared, based on your income. Breaching any of the terms will put the arrangement at risk of getting terminated. 

Check your Eligibility for an IVA

After getting to know — is an IVA a good idea or not, you must check whether you are eligible. Not every insolvent person can get an IVA. There are some specific conditions that you must fulfill. 

First, you must have at least two creditors. Second, you must owe above £5000 to them, though this is not exactly a rule. The practitioner’s fee is often so high that it is not worth opting for unless you owe the amount specified here. 

What are the Pros of getting an IVA?

There are quite a few benefits that an IVA offers you. Here are some of the most appreciated ones that you’ll get :

  • You don’t have to deal with any of the creditors

One of the biggest pros of getting an IVA is that you don’t have to deal with any of your creditors. All of that would be done by your insolvency supervisor, throughout the arrangement period. Moreover, the creditors don’t have the right to harass you for repayment, during this time. 

  • Creditors can’t start legal proceedings

In other circumstances, your creditors can take legal action against you for not paying debts. But, during an IVA, they can’t do that because it is against the basic rules of this arrangement. 

  • No interest can be charged from you

Another great benefit that you get in an IVA is that you don’t have to pay interest over your debt. As soon as the arrangement is in effect, the interest gets frozen and you have to repay only the principal amount. This would greatly help in clearing off your debts. 

  • The monthly payments would be affordable

In an IVA, the payment plan is generally prepared based on what the debtor can pay. This is one of the main reasons to get into this arrangement. By chance, if you’re asked for a monthly payment that you can’t afford, don’t settle for it. 

Risks you face in an IVA

With so many benefits, an IVA also comes with its share of risks. You must consider these more carefully than you do the benefits. And, then conclude — is an IVA a good idea.

The very first risk you’ll face is the creditors not agreeing to your terms. If the arrangement fails, you’ll lose money, in case the insolvency company has taken upfront fees and doesn’t have a money-back guarantee. Even if the creditors agree to your terms, more risks are waiting for you. 

If you fail to adhere to the terms yourself, you’ll endanger the entire case. This includes failure to pay an instalment, spending above the budget without the supervisor’s permission, etc. If you fail to cooperate with your IP, supposedly by failing to provide the requested information, it can put the arrangement at risk. 

Would an IVA be a Good Idea for you?

Still, confused? Is an IVA a good idea? Whether an IVA is a good idea or not differs from one individual to another. So, if it isn’t a viable option for someone else, it could still be for you. To know whether it’s a good idea for you, you must consider your debt situation. An IVA would be worth going for only when you owe a high amount and the benefits outweigh the risks.