An IVA is a flexible and effective procedure intended for those unable to pay back their debts and an alternative to the traditional bankruptcy procedure. Essentially, an IVA changes the structure of your original payment plan and adjusts it to your real financial possibilities. As part of an IVA, you are drawing up a new payment scheme to which both you and your creditors need to agree. Once its term has expired, whatever remains of your debt is written off. Over the past years, IVAs have gained in reputation and become extremely popular, today accounting for a higher percentage of personal insolvencies than bankruptcy. Here’s why.
An IVA is a binding government-approved solution
An IVA is not another fad product dreamed up by the inventive marketing departments of big financial firms. It is a serious government-supported tool aimed at offering those with high debts a viable alternative to the burdensome bankruptcy procedure. This means that it comes with a lot more securities than your average debt management plan and represents a binding contractual agreement: Your creditors will not be able to change their mind a week into the IVA, nor will they be able to demand a change of conditions a week prior to its expiration.
An IVA is attractive to borrowers and creditors alike
By filing for bankruptcy, you are signalling to your creditors that you are unable to pay back your debts. By applying for an IVA, on the other hand, you are letting them know that you are looking for a decent way out of a difficult situation. Don’t be fooled by promises that IVAs can wipe away up to 70% of your debts. Although this is, technically speaking, correct, IVAs are not one-sided arrangement intended to clear debtors of their responsibility. Each IVA needs to be agreed upon by you and your creditors and by working out a mutually satisfying solution, you will find that the other side is far more willing to make concessions.
An IVA sets realistic goals
Of course, you could, as an alternative to an IVA, try to work out a debt management plan at even better conditions. On the other hand, one of the major advantages of an IVA is precisely that it sets realistic goals instead of making vague promises. You will need to pledge at least £150 in repayments each month to make a notable dent in your debts. This may sound harsh, but there is decisively a reward in this: By working out your precise financial possibilities at the beginning of an IVA, you are preventing yourself from defaulting on it at a later stage – and having to declare bankruptcy after all.
An IVA paves the way for managing your debt.
You will only be ‘debt free’ on the successful completion of an IVA and it will only apply to the unsecured debts contained within the IVA. Many taking out an IVA are finding that the procedure is not just a viable way out of debt but makes one re-think one’s entire approach to debt. An IVA forces you to examine and assess your monetary status and your spending patterns. Aligning outgoings with incomings is an essential part of the procedure and by mastering this; you will be able to arrive at a sensible road towards consolidation in the future.
At all stages of the process, a debt management agency can help you through advice and support. This is why finding a suitable financial partner should be a top priority.