IVAs, or Individual Voluntary Arrangements are they might also be known, are a UK Government answer to personal insolvency. They’re often seen as a legal alternative to bankruptcy and work essentially by restricting the repayments of a debtor’s debts according to what he or she can realistically afford. The interest is often frozen and chunks of the debt that the debtor simply cannot afford to pay back are often written off.
But the IVA has both advantages and disadvantages, as you would expect with a formal debt solution. Of course its major advantages are that the payments take place over a set period of time, often five years. At the end of this period, your debts are considered settled in full. You are ultimately debt free! Well, at least free of all the debts that were included in it! The fact the IVA writes off unaffordable debts is also a massive advantage, making repaying much more manageable.
However, there are downsides too. For a start, an IVA will show up on your credit history and will have a detrimental effect on your getting credit in the future, even after your IVA has finished. It will feature for six years after it ended and during this time you may find it very difficult to get credit and find that credit you are able to get will be expensive.
In addition to that, if you fail to keep up payments on your IVA, there are potentially severe consequences. While you are protected from your creditors as long as you keep up the payments, failure to do so could mean they could force you into bankruptcy.
However, the IVA has proven itself an effective alternative to bankruptcy for many thousands of consumers in the UK. It gives debtors a chance to at least pay off some of what they can afford to do without having declare themselves bankrupt.