Individual Voluntary Arrangements (also known in Scotland “Protected Trust Deeds”) can be robust tools to change the balance of power from the creditor to the debtor. You can expect to be put under aggressive pressure by creditors to pay back the debt, including the threat of legal action, yet at the same time they’ll continue to add penalty charges to the existing debt, an IVA can halt this action.

When it comes to an IVA, the upsides do outnumber the downsides, yet you as the debtor should be aware of the negative effects an IVA could have, as it’s also possible an IVA is not the best debt solution, the upfront costs of planning an IVA can be quite steep. Depending on the debtors’ circumstances, other debt plans or even bankruptcy might be more favourable than an IVA, so it’s best to talk to a qualified advisor to see which possibility is the best to go for.

Let’s begin with the upsides of agreeing to an IVA, it is a permanent solution to a persistent debt difficulty, either the agreed sum is paid or once the five years over (an IVA can only last five years max), the outstanding debt is wiped by the creditors. To secure an IVA, a simple majority of the creditors representing 75% of the total debt value have to agree to the IVA, if 25% refuse to accept there is naught they can do to impede the IVA. An important advantage is it’s a legally binding agreement between the debtor and creditor; they cannot extract more money off the debtor or demand an increase in your monthly repayments, which they could demand under a Debt Management Plan (they should not be contacting the debtor anyway, instead going through the IVA Practitioner who is acting as your administrator). Probably one of the most important bonuses of an IVA is it actually brings your monthly expenditure down, as the monthly IVA payments are calculated to be at a reasonable level so you have enough money to pay the requisites every month (mortgages, groceries, utilities etc).

Under an IVA it is possible to protect certain assets within the arrangement by specifically excluding them, it is possible to put the family home as an excluded asset. What this means is if the IVA were to fall short for any reason, the excluded assets could not be seized under any resulting legal proceedings. Don’t worry if you are self employed, the IVA extends to your company also, if you’re not working the creditors won’t get there debt back, it’s in their interest that your business is unimpeded, under bankruptcy this would not be possible. Some professions have limitations on bankrupt persons working (for example limited companies cannot have directors who have been declared bankrupt); an IVA does not make these insistences. An IVA also means you do not have to announce your bankruptcy to your employer and it won’t be announced in the local press either. To wrap up, an IVA offers privacy a bankruptcy never would, partly because of this the stigma that surrounds going into bankruptcy does not taint an IVA, which can give some deserved peace of mind knowing you have paid as much of your debt as you could within the five years and be full of pride by that fact.

Now for the negatives, many of the positives already mentioned have flipsides you should be aware of, the first being while the IVA formal agreement can protect you from the creditors, the debtor is also bound by the agreement. If the debtor fails to keep to the agreement, in most cases this will somehow involve the repayment plan, the IVA can be declared void by the practitioner or one of the creditors, with the end result being bankruptcy for the debtor. It has already been stated in the article that repayment schedule is designed to make it easier, however whatever the agreed amount it will be totally inflexible, you will only be able to change the amount paid under extreme circumstances; they cannot be changed on a whim. Make no mistake the payments will leave you with very little spare cash as you are still expected to pay back as much as you can each month, even if your income increases due to a new job for example, your payments will also increase to take this into account. The IVA supervisor will know of any income increases is the next downside to an IVA agreement as is the requirement of annual reviews by the IVA practitioner, the debtor will have to keep records and all financial dealings will be reviewed. Failure to comply with this can invalidate the IVA as it is obligatory under almost all IVA’s. It goes without saying, but an IVA will be a black cloud over your credit rating, it will stay on your credit report for the period of the IVA and will stay on your credit rating for the first year after the IVA has ended. For this reason, attaining credit can be difficult to impracticable in the medium term after the IVA has ended, during the IVA, taking on credit over £500 has to be authorised by the practitioner and that’s very unlikely to happen. Any illicit credit taken on will also contravene the IVA. While you can exclude your house from being part the IVA, the creditors would have to be in agreement, if they do, in return the IVA might involve the debtor to release a portion of the equity from the house. Common practice would mean the equity would not need to be released from the house more or less the third or fourth year of the IVA.  To complete the negatives a simple point, an IVA lasts longer than bankruptcy would, bankruptcy usually lasts a year compared to an IVA’s five year plan.

Free debt advice provided by Emma O’Garrity. Emma is part of the team from JustClearMyDebts.com, giving all the latest news on debt solutions, credit card debt and IVA information.

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