IVA stands for Individual Voluntary Arrangement. It means you have to pay a lump-sum amount of your debt in a given period of time, say 5 years; then the rest of the debt will be written off. People who are in serious difficulty to pay their loan back, can adopt this loophole in the banking system. It can be a great saver from bankruptcy. It can be taken when people have limitations or extreme difficulties to repay their debts.
Now-a-days there are lots of companies which make a huge sum of profits by leading their customers to IVAs. Some of them even claim that they can eliminate up to 90% of the debt whereas a realistic deduction can only be up to 60%. Sometimes they claim they are free while, in fact, they charge indirectly. However, there is a solution to this. You just have to go to some non-profit debt counsellors. Fortunately, most of them are provided by the state itself such as The Consumer Credit Counselling Service, National Debt line and local Citizens Advice Bureau. They use various techniques, try to negotiate with creditors, recommend whether a debt management plan or a IVA or a bankruptcy considering your circumstances.
In IVAs you have to pay around 30p ( some charge 40-50p) for every pound owed. Roughly at least £200 has to be paid per month. However, the creditors will only accept your IVA when they find that they will be less benefited by making you bankrupt. An ideal IVA candidate will be someone with a stable limited income with enough spare cash after spending for his essential needs ( luxuries like holidays, clothes, gifts etc. are excluded). You may not have to sell your house or car, but the bank will ask you to re-mortgage and release up to 75% of your share. Again, if you need the car for work, you may not have to sell it. Except for some private pensions, your state pension scheme will be unaffected.
Whatsoever, help is not far away. MoneySavinExpert.com is a special community which helps people at different debt levels. Its ‘Debt Free Wannabe Board’ (a part of the site’s forum) has helped hundreds of people. First you have to send your S.O.A. (statement of affairs) to let others know who were at the same situation and good advice can show you the way.
Insolvency Practitioners (IP) often charge a ‘Nominee Fee’ (initial charge for advice and setting IVA) of around £2,500 followed by a ‘Supervisory Fee’ (to run it) of around £1,000 each year the IVA lasts. They will charge it gradually from IVA payments. Speaking truly, your first few years’ payment will effectively be swallowed by them. So, you have to look at how much they charge. It’s always better to go to non-profit debt counselling agencies.
After taking IVA, any financial changes should be notified to IP. If your situation worsens, payments can be delayed 1-2 months or even lowered.
During IVA you can’t use credit cards and get further credits. Though it’s not as bad as bankruptcy, it will be kept in your credit file for the next 6 years. At the end of your IVA, make sure that credit reference agencies (Experian, Equifax and Callcredit) are notified that the IVA is complete. The best way is to send them a copy of your IP’s letter. That’s all. You will be debt-free and credit worthy again.