Debt management solutions and "IVA vs. Bankruptcy"

When your debts are very serious then you are mentally prepared for the possibility of bankruptcy. At this condition there is an alternate of bankruptcy which is called "IVA" or Individual Voluntary Arrangement. This post would help you learn about this debt management system.

More about IVA

An IVA is an arrangement to settle debts within a fixed period of time normally 5 years. All interest is frozen and after the end of the arrangement, outstanding debt is written off. The arrangement is governed by the Insolvency Act of 1986.

It is only available in the UK. It's basically an alternative to bankruptcy - the major advantage being that people do not have to lose their home. It's eligible to UK residents so long as they are in regular employment, and have over £15,000 debt owed to three or more creditors. IT stands for Individual Voluntary Arrangement, and debtors commit (it's legally binding) to making an agreed payment over a period of time (usually five years). Providing the debtor sticks to the terms of their IVA and makes the payments, they have potential to wipe off the remainder of their debt.

IVA is a formal agreement between you and your creditors where you will come to an arrangement with people you owe money to, to make reduced payments towards the total amount of your debt in order to pay off a percentage of what you owe then generally after 5 years your debt is classed as settled. Due to its formal nature, an Individual Voluntary Arrangement - IVA has to be set up by a licensed professional called an Insolvency Practioner (IP)

Why use an IVA?
Besides overcoming the problems outlined in Why avoid other Debt Solutions? An IVA offers a real solution, a “Light at the end of the Tunnel”, where informal debt solutions as described above do not.

* You have an agreement with your creditors to make a single reduced payment each month.
* It lasts for a sensible period of time (normally 5 years).
* Once agreed, creditors are not allowed to add further interest or charges to your accounts by law.
* The agreement is fixed, meaning that creditors cannot randomly demand changes to it.

Its Purpose?
It is a legally binding agreement between you and your creditors (people you owe money to). It helps those in financial difficulties to make a formal proposal to settle their debt.

What Are The Arrangements?
Monthly payments are based on an affordable disposable income. Once the final payment is made, any outstanding debt is legally written off. The arrangement can write off up to 65% of your debts (subject to your circumstances).

How does it work?
Debts are settled within a reasonable and fixed period of time (normally 5 years). Any interest and debt charges will be frozen and creditors will be prohibited from demanding additional payments.

Once a decision has been made that an Individual Voluntary Arrangement - IVA is right for you, you will be asked questions regarding your current financial situation. Based on the information you have given, a repayment amount will be agreed with you. Once proposals have been drawn up you will need to check and sign these and return them to your Insolvency Practitioner (IP).

An application may then be made to the court for an Interim Order. Once this is in place, no creditors will be able to take legal action against you. You may be asked to attend your creditors meeting but this rarely happens, normally you are asked to be contactable by phone on the day.

For an Individual Voluntary Arrangement - IVA to be approved, creditors will be called upon to vote either for or against the arrangement. If only one creditor votes "for" the Individual Voluntary Arrangement - IVA, the Individual Voluntary Arrangement - IVA will be approved. However, if only one creditor votes against the Individual Voluntary Arrangement - IVA and they represent less than 25% of your total debt, the meeting will be suspended for a later date and other creditors who did not vote will be called upon for their vote.

If the creditor who voted against the Individual Voluntary Arrangement - IVA represents more than 25% of the total debt you owe the Individual Voluntary Arrangement - IVA will fail. This is because an Individual Voluntary Arrangement - IVA will only ever be approved if 75% in monetary value is voted for. If any of the creditors don't vote, it is assumed that they will vote FOR the Individual Voluntary Arrangement - IVA.

To read more:
Individual Voluntary Arrangement

Useful studies:
* LOANS AND IVA DEBT MANAGEMENT

* Debt Management IVA: Eliminating Debts the Easy Way