Many claims are made about the Individual Voluntary Arrangement (IVA) solution and how good it is for solving personal debt problems.

The headline benefit is often that it will help write off a significant amount of debt. This is of course is very attractive but is it really too good to be true? As with most things the answer is that it depends.

The Arrangement can be an extremely good solution however for some people the negative aspects outweigh the positives. We will look at some of the major advantages and disadvantages and how important these will be to you depending on your particular financial circumstances.

The potential benefits of an Individual Voluntary Arrangement

The IVA solution offers a number of benefits. Possibly one of the most significant is that you only pay what you can afford for a period of 5-6 years. After this time the Arrangement ends and any unsecured debts that remain unpaid are written off.

In this way the solution does allow people to write off significant amounts of their debt. However the amount written off will differ from person to person depending on how much they can afford to pay into the arrangement.

Another significant benefit is that once in place no further legal action can be taken against you by your creditors. This is particularly important for home owners as their property is immediately protected from the threat of Charging Orders.

Other benefits are that all interest and charges are frozen for the duration of the agreement. This is clearly an advantage over other solutions such as a debt management plan (DMP) where additional interest and charges added by creditors can increase the length of debt repayments for many years.

The solution can also be a useful tool for people who are directors of a limited company as they are allowed to remain in their position while the arrangement is in place.

Do you want help to start an IVA? Give us a call on 0800 077 6180 or complete the form below to speak to one of our experts

The potential downsides of an Individual Voluntary Arrangement

Despite the potential benefits it is important to remember that an IVA also comes with some potential downsides and you need to understand these before making a decision to use the solution.

One of the first things to think about is that using this solution will negatively affect your credit rating. A record of the Arrangement will be recorded on your credit file and will remain there for 6 years. This will make it more difficult for you to get new credit in the future.

Of course this issue has to be balanced with the fact that if you are thinking about starting a debt management solution you must be struggling with your debt. As such if you have not already done so, you are likely to start missing your regular monthly debt repayments which will significantly affect your credit rating anyway.

If you are a home owner it is important to understand that you must release equity from your property for the benefit of your creditors if it is possible for you to do so. This could mean that you are obliged to remortgage your home on a less favourable mortgage although equity could also be released using a secured loan so the entire mortgage does not have to be changed.

Another problem is that the solution is not private. Your name is not advertised in a local newspaper but your details are listed on the Insolvency Register. This is a public list and is easily accessible and searchable on the internet. Your name will remain on this register until the Arrangement is finished.

Anyone considering an IVA must also be aware of the potential problems if they are unable to complete the agreement and it fails. Firstly you will lose any money you have paid into the arrangement and you will still be left with all your debts. Secondly if you are a home owner with equity in your property you could risk being made Bankrupt.

An Individual Voluntary Arrangement is not right for everyone

When deciding on whether an IVA is right for you it is vital to weigh up both the positive and negative aspects of the solution in the context of your own circumstances.

For some people, the advantages described above could be very strong reasons to start one however the downsides of the arrangement may well be enough to put many people off.

For this reason it is important not to be taken in by headlines advertising the benefits of these Arrangements without first understanding exactly how they will affect you.

One of the best ways to do this is to speak to one of our advisors who can explain exactly what it will mean for you and also talk to you about the alternative personal debt solutions available so you can make an informed choice.