IVA Pros and Cons

An IVA is perhaps one of the most popular debt solutions out there. After all, it has several benefits which really set it apart from some of the alternatives. However, similar to any kind of financial product, it has disadvantages as well.

If you’re reading this article, it’s a safe bet that you’re already considering taking out an IVA. If you’re on the fence though and not sure whether this solution is right for you, we’ve laid out the pros and cons below so you can make an informed decision:

What is an IVA?

An IVA (Individual Voluntary Agreement) is a legal debt solution designed to repay your creditors in a reasonable amount of time. This arrangement between you and your lenders means you make monthly repayments towards your debts over a set period. Once this expires, any remaining debts are written off.

Although this makes the IVA a very attractive prospect, there are other benefits as well:

Ten pros of an IVA

1. Asset protection

With debt solutions such as bankruptcy, your assets are not protected. As a result, your home or car could be sold to repay your creditors. This is not the case with an IVA; your assets are protected and won’t be repossessed to repay your debts.

2. Pay what you can afford

When an IVA is being set up, a qualified professional (called an insolvency practitioner) will work closely with you to determine just how much you can afford to pay per month. This means the payments should never put you in financial hardship.

3. Reliable, consistent payments

Speaking of payments, these are agreed by your creditors. This means you’ll know exactly what you need to repay each month and when.

4. Debt write off

Once the IVA ends, any remaining debts to your creditors are written off.

5. Freezes interest rates and charges

Stopping the amount you owe from increasing, an IVA freezes interest and prevents charges from being added to your accounts. This stops large sums of money from becoming unmanageable.

6. No direct contact with creditors

Receiving demands for payment or other letters from creditors can be stressful – especially if you don’t have the money available to repay them. Once an IVA is approved though, your creditors won’t directly contact you.

This grants some much-needed peace of mind.

7. Protects from legal action

Providing you follow the terms of the IVA, your creditors aren’t allowed to take legal action against you. This means you shouldn’t hear from any bailiffs or debt collection companies.

8. Your career

Although it’s worth checking your employment contract to make sure an IVA won’t affect your occupation, some industries won’t recruit – or continue to employ – people who have been made bankrupt.

The same cannot usually be said of an IVA.

9. Social stigma

Although the topic of debt should not be a stigma to begin with, an IVA is generally regarded more favourably than some other solutions, such as bankruptcy.

10. Legally binding

An IVA is a legally binding agreement. Not only do you have to abide by the terms but your creditors need to as well. This also grants your debt solution extra security.

Four cons of an IVA

1. Not a private solution to debt

Once your IVA is approved, your name will be added to a public database called the Insolvency Register. This resource is searchable by anyone but, in practice, few will actually search through it.

2. Your credit rating will be affected

Similar to other debt solutions, your credit rating will be affected by an IVA. Furthermore, once this agreement comes to an end, the arrangement should stay on your credit file for at least another year.

Consequently, you may find it harder to obtain loans or other financial products in future.

3. You may need to release equity from your home

If you’re a homeowner, you may have to release equity in your property during the final year of your IVA. If this isn’t possible – or you don’t own a home – the length of your IVA may increase by another 12 months.

4. Payments must be made

Being a legally binding debt solution, payments to the IVA must be made. If you miss a payment, and fail to rectify the breach, your agreement could fail. As a result, you might be made bankrupt. To ensure this doesn’t happen, it’s advisable to budget so IVA payments are always made on time.

Is an IVA right for me?

We’ve detailed ten positives and four negatives of an IVA. If you feel this arrangement is right for you, then complete our application form and you can find out – free of charge – whether you can benefit from an IVA.

Just click the button below and you can take the first steps towards writing off your debt: