Many people in the United Kingdom are looking for a solution to debt problems. IVAs, or Individual Voluntary Arrangements, are a formal and legally binding alternative to a bankruptcy, and they may be the best solution for many people. This article reviews IVAs how they work.
Although many people have severe financial difficulties, due to high levels of indebtedness, there are numerous solutions which are available. In the United Kingdom these include Debt Management Plans, Debt Relief Orders, refinancing or remortgaging, Individual Voluntary Arrangements, and bankruptcy. Choosing the best option is not easy, but UK charities such as Citizens Advice Bureau (found in most towns), and the Consumer Credit Counseling Society (contact by phone or via their website), offer free of charge debt counseling.
Debt counseling always includes a review of an individual’s financial circumstances, including their regular income and expenses. The counselor will try to develop the best solution to each person’s debt problem. Although some people may only need some help to improve their budgeting skills, most will require some more formal assistance in dealing with their creditors. The debt counselor can also be expected to explain how priority debts differ from non-priority debts.
Priority debts are more important than non-priority debts because they have more severe consequences. For example failure to pay mortgage arrears or rent arrears may lead to homelessness, so these have a higher priority than making repayments on a credit card.
One solution which the debt counselor might recommend is an IVA, or Individual Voluntary Arrangement. An IVA is a legally binding alternative to a bankruptcy. The person who is in financial difficulty will reach an agreement with creditors. The agreement will require them to pay as much as they can reasonably afford for a fixed period (e. G. Five years). After this period the debts would be written off.
IVAs may be as flexible as an individual’s circumstances require. They may for example be based on payments out of capital, out of income, or from a third-party. In most cases an IVA would not be recommended for someone who owned their own house, but for those who live in rented accommodation they can sometimes be the best solution.
IVAs must be arranged by an Insolvency Practitioner, who will act on behalf of the person in debt to draw up a proposal. The Insolvency Practitioner will charge for his services so it is important to first find out (e. G. By debt counseling from a charity) whether the IVA is the best solution.
The proposal will usually divide any monthly income which is left over after payment of necessary expenses, and priority debts, between all remaining unsecured creditors. The creditors will get a chance to vote on the proposal. In many cases they will vote yes, because they will probably get more of their money back this way, than if the person applied for a bankruptcy.
Charges and interest are frozen when the proposal is accepted, and no more demand letters are sent. IVAs can last for varying amounts of time, but five years is quite typical. At the end of the time period any remaining debts would be fully written off.
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