IVA & Debt Consolidation Advice

Many people are still not aware that in the UK, there is an alternative to bankruptcy; namely the Individual Voluntary Agreement or IVA.

After bankruptcy debts are written off, but a person’s life often changes for the worse because they not only become ineligible for credit, but they can’t even open a bank account for a specified number of years. The IVA though, is an option whereby your debts are “suspended” and an acceptable monthly sum is negotiated with your creditors, until your finances recover sufficiently enough for you to be able to restart paying your loans. The outstanding balance will still owed, but the debt is “suspended” in the sense that interest and other charges are frozen under the terms of the IVA.

However, not everyone is eligible for an IVA, and there are few set rules about how much has to be paid. The process often takes place with a suitable insolvency partner, negotiating on your behalf with your creditors until an agreement is reached that is acceptable to all involved. For the case of debts with multiple companies, then the IVA can only run when the creditors to whom you owe 75% of your debts are in agreement with any proposed deal.

Often a lump sum will have to be paid to the insolvency partner, after which you will undertake a legal commitment to make monthly payments. The payments are based on your income and any outgoing expenses, and you should provide documentation in evidence to support these.

For the debtor there is the advantage of avoiding bankruptcy, and the stigma associated with it. There are often advantages for creditors, because they hope to avoid legal fees associated with lengthy, and expensive bankruptcy proceedings. There are even advantages for the Government because IVAs are processed by independent insolvency experts, rather than the UK’s Department of Trade and Industry, resulting in savings for them too.

Awareness of the IVA is increasing rapidly though, and a record number of people sought an IVA in September 2005, according to recent figures.
The IVA may not be suitable for everyone – but advice should be sought, preferably as early on as possible, for those who would like to avoid the problems and dishonour often associated with bankruptcy.