Debt HelpStruggling with High Levels of Debt? Find Out How An IVA May Help

Struggling with High Levels of Debt? Find Out How An IVA May Help

There are around 8.3 million people in the UK with unaffordable levels of debt which they are struggling to pay back.  

Not only that but 22% of adults are believed to have less than £100 in savings... and by having no financial safety net, individuals are much more likely to experience financial hardship. 

This may be why debt soared in May 2020 – just a few months after coronavirus hit the UK – with 4.6 million people accumulating over £6bn in debt and arrears.  

People who are finding it difficult to keep up with their escalating debt repayments may want to explore the debt solutions that are available to them. 

In this article, we’re going to talk about IVAs, a debt product for which almost 80,000 people were approved for last year. So, continue reading to find out if this is the right debt option for you... 

What is an IVA?

IVA stands for Individual Voluntary Arrangement, and it is a contract between a person and their creditors that’s designed to help them repay multiple, mounting unsecured debts.  

A qualified insolvency practitioner will create the agreement based on a person’s unique financial circumstances - proposing an affordable, set monthly amount to their creditors. 

If the IVA is approved, the individual will be required to stick to the new repayment amount over the length of the IVA, which usually lasts for 5 to 6 years. In addition, the person’s creditors must stop all legal action, direct communication, interest charges and late payment fees.   

What is the eligibility criteria for an IVA?

Anyone who is considering an IVA needs to satisfy the following criteria in order to benefit from this debt solution: 

  • Over £5,000 to £6,000 worth of unsecured debt. The minimum amount may vary depending on the IVA provider. 

  • A minimum of 2 creditors (this is the company a person owes money to). 

  • Spare income every month to make IVA repayments. 

 Debt management companies usually offer a free telephone consultation with a qualified professional in order to confirm a person’s eligibility for an IVA.  

The benefits of an IVA

An IVA is a good way of helping people who are struggling with high levels of debt to get their finances back under control. Continue reading to find out the other benefits of an IVA.... 

  • An agreed percentage of unsecured debt could be written off  

  • A person could become debt-free once the IVA ends (in 5 to 6 years) 

  • All legal action and charges will be stopped upon approval of the IVA 

  • A new, lower monthly repayment will be decided based on what the individual can realistically afford 

The disadvantages of an IVA

In the interest of transparency, here are the potentials cons of taking out an IVA... 

  • The insolvency practitioner (IP) may charge a fee for arranging the IVA 

  • The IVA will appear on a person’s credit report for six years and it will impact their rating 

  • Creditors can reject the IVA if they don’t agree with the new terms 

 An IVA won’t be the best solution for everyone’s financial circumstances... however, it’s always good to know your options.  

There’s also a new government ‘breathing space’ scheme that may be worth considering for those with unaffordable debt. It allows people to freeze interest charges, penalty fees and legal action for a grace period of 60 days - helping them get their finances back on track.