There are many reasons for getting into debt, and although we were fortunate enough to become debt free a few years ago, many people still find themselves facing debt. There are many ways to explore when it comes to getting out of debt, and in this blog post I want to share how you can get our of debt with an IVA.
What is an IVA?
IVA stands for Individual Voluntary Arrangement, and they were introduced by the UK Government back in 1986 as an alternative to bankruptcy.
With an IVA you enter into a legally binding contract with your creditors, and you agree to pay off as much of your debt as you can afford over a set time. This is usually over 5 years.
You aren't just automatically entitled to an IVA, but if your creditors agree to this then your interest and other charges will be frozen.
Will all my debts be written off?
No. An IVA isn't a ‘get out of jail' card.
However, an IVA is a tool used by many people to tackle paying off their debts, especially if they don't want to go bankrupt.
The amount of debt that you can get written off will depend on how much was originally owed, as well as how much you are able to repay over the set period. You could be looking at getting as much as 70% of your debts written off.
Realistically, most people get 50-60% written off.
This sounds too good to be true
Getting up to 70% of your debt written off with an IVA does sound amazing, however there are some things to consider before going down this route.
First of all you need to get advice based on your individual situation before taking out an IVA, perhaps by talking to a debt charity.
There are some other important things to consider too.
With an IVA you have to budget really far in advance. This means if you wanted to make a big financial commitment during the IVA, such as getting married, you might struggle.
You are limited to taking out new credit too – you can only take on new debts up to £500, which is understandable.
Your credit rating will be affected for six years (from the date the arrangement is agreed) which could impact your long term financial goals.
If you earn any extra money over the span of the IVA (perhaps from side hustles or a bonus) will need to declare this and it may need to be paid into the IVA.
You also need to talk to your employer or HR department as taking out an IVA might affect your employment. These are usually jobs in the finance industry, law industry, property or accountancy. You can speak to your employer to double check.
How to apply for an IVA
You can't arrange an IVA yourself, you will need to work with an insolvency practitioner. They will work to propose and manage your IVA.
Please do seek advice based on your own situation.