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What is an IVA?

The IVA was first established by and is governed by Part VIII of the Insolvency Act 1986 and constitutes a formal repayment and proposal presented to a debtors and creditors via an insolvency practitioner.
Usually the IVA comprises only the claims of unsecured creditors, leaving the rights of secured creditors largely unchanged. Insolvency practitioners charge at initial and ongoing fees that are also in addition to the debt.
An IVA is a contractual arrangement with creditors and can be as flexible as an individual's own circumstances but they can therefore be based on capital, income, third party payments or a combination of these.
Individual Voluntary Arrangements (IVAs) is a way of dealing with your debts. It also involve you and your creditors to help you pay off your debts at a reasonably priced.

How an IVA works?

An Individual Voluntary Arrangement (IVA) freezes all your debts and allows you to pay them back over a set of periods. Any money you still owe after this period is then written off.
You can apply for an IVA, if you can afford to pay something or little bit towards your debts but not necessarily the full amount at a time that your creditors want.
You will need to show that you have a regular long-term income as the repayments and will usually cover a period of over a 60 or 72 months which may be equal to five to six years.
If you have a lump sum amount to pay towards your debts, you might easily qualify for an IVA.
It is very much depends on what your circumstances are as to whether they will agree to the plan.
An IVA is legally a binding agreement between you and the people you owe money to.
This means once you have signed it, neither you nor your creditors can back out. So you need to make sure it’s right for you.

What debts does an IVA include?

When you enter into an IVA most of your debts are going to be involved:-

  • Catalogues
  • Personal loans
  • Overdrafts
  • Credit cards
  • Gas and electrical arrears
  • Council tax arrears
  • Water arrears
  • Payday loans
  • Store cards
  • Income tax and Social insurance arrears
  • Tax credit or profit over payments
  • Debts to family and friends
  • Any Alternative outstanding bill, for ex - solicitor’s Prices, invoices for building work and veterinary bills

Advantages and disadvantages

The advantages and disadvantages of an IVA compared with other debt solutions are particular to a debtor's individual circumstances and professional advice should be sought to decide on the best option.
Stigma - An IVA is a private agreement between a debtor and creditors. But from 6 April 2009, bankruptcy is no longer advertised in the local newspaper, only in the London Gazette. Both debtors in an IVA and bankruptcy are listed publicly on the Personal Insolvency Register - anyone can view the Insolvency Register.
But it usually mainly used by credit reference agencies who use it to update credit records (an IVA will affect your credit record but this is the same as with other debt solutions), and creditors who will use the Insolvency Register to help them make a decision on whether they should lend money to potential customers.
Length -
IVA which is based on the Income can often last up to five years, although it can be any length.
If the bankrupt is eligible for an early discharge then the bankrupt is normally automatically discharged after one year or less.
Obtaining credit -
Unlike bankruptcy, an IVA does not statutorily restrict a debtor from obtaining credit, although the proposal may do so. One can legally obtain credit of up to £500 without disclosing one's status as a bankrupt in Bankruptcy.
Ability to trade -
Partnership usually dissolve in Bankruptcy and it also prevent a debtor from acting as a director of a company. This is to be disclosed by the self-employed trader that he or she is bankrupt when obtaining credit, for example when dealing with suppliers.

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