An IVA is a legally binding, formal agreement between you and your creditors to repay a portion of your debt. An assessment of your income and outgoings is completed to check how much you can afford to pay into the IVA each month. Once an amount you can afford each month is established, your creditors vote to decide if the IVA should be approved. The majority of your creditors need to vote for the IVA for it to go ahead. Once approved, the IVA usually lasts for 5 years with any of your remaining debt written off at the end.
There’s more than one reason why the IVA has proven over time to be such an effective route out of debt. Most people who benefit from an IVA would say having part of their debt written off is what appealled to them the most. In fact, up to 80% of your debt could be written off under an IVA; this means that if you owe £10,000, you could have up to £8000 of it written off! In addition, your creditors are no longer allowed to apply any interest or charges to your debts, or contact you for payment whilst you’re subject to the IVA. They also can’t take legal action against you.
All of your unsecured debts should be included in an IVA. Unsecured debts include credit cards, store cards, personal loans, payday loans and catalogue. Council Tax arrears and Benefit overpayments can also be included in your IVA. Secured debts, such as a mortgage or secured loan, cannot be included. Hire Purchase agreements, Court fines and CSA arrears can also not be included.
It’s unlikely that entering into an IVA would have a negative impact on your employment. However, in some instances, certain types of roles that involve finance can be affected if you access an IVA. It’s usually written into your employment contract so it could be worth checking this over if you work in roles involving financial advice, mortgage advice and accountancy.
One of the big advantages of an IVA is that your property isn’t at risk as long as you keep up to date with your mortgage payments. In fact, none of your assets are at risk under the IVA. However, in the final year of your IVA, you may need to release equity from your home. If this isn’t possible, then the length of your IVA may increase by a year.