One of the most common solutions people in Northern Ireland consider when dealing with unaffordable debts is an individual voluntary arrangement or IVA.
What is an IVA?
An IVA is a legal agreement between you and your creditors. IVAs are a possible solution we would examine where a borrower owes money to multiple creditors.
Most types of debt can be included in an IVA, including mortgage debt, credit card debt, unpaid council tax or money owed to HMRC. An IVA might also be worth discussing if you own multiple properties with mortgages from different lenders, or you have unsecured debt from several creditors.
Once a settlement is agreed with your lenders it can be paid as a five-year payment plan, known as a contribution IVA, or, if you can afford it, as a single lump sum.
With a fixed repayment period (usually 60 months), an IVA enables the applicant to make payments based on affordability rather than their contractual obligations. However, depending on your circumstances and if you have access to any additional funds, an IVA can be completed in as little as six months.
Once an IVA has been approved by creditors they are legally obligated to cease all legal action and freeze all interest or late payment charges.
On successful completion of the IVA, the creditors are legally obliged to write-off any outstanding debt, leaving the applicant completely free of all the debts included in the IVA.
Who is an IVA for?
Most applicants considering an IVA will have unsecured debts amounting to £10,000 or more, although there is no minimum debt level required to qualify for an IVA. While it isn’t a requirement for the applicant to have missed any of their contractual debt repayments, the prospects of doing so should be imminent.
Applicants can be employed or self-employed and can be homeowners or tenants.
How will my finances be affected?
One factor to consider when applying for an IVA will be the effect on your credit rating. An IVA doesn’t blacklist your credit file forever, however.
Once it is complete, your credit rating can, and should, repair fairly quickly.
After undertaking an IVA, you will be required to give up all of your current credit (e.g. credit cards and store cards). However, you will be allowed to use pre-paid cards. During the IVA you must not apply for any further credit, but once the IVA has been successfully completed, the restriction is lifted and you can begin the process of rebuilding your credit rating.
One advantage of an IVA, unlike Bankruptcy, is that it protects your property and the equity held within it, so an IVA applicant will not be required to sell their home. Instead, creditors will demand that you try to release any equity at a pre-arranged time during the IVA term.
Fortunately, creditors’ expectations will be limited by the IVA protocol ensuring they can’t force you to sell your home if you can’t release equity from it. Instead, the IVA will be extended for 12 months in lieu of any equity that can’t be released.