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How good is an IVA at reducing your debts?

September 21, 2008 |

There are lots of websites and other promotors advertising individual voluntary arrangements ‘IVA’s’) as the savior for anyone looking to significantly reduce their debts.

There’s no doubt that IVA’s can be effective in reducing debts but they’re certainly something that you need to go into with your eyes wide open.

When you go into an IVA you essentially agree to make reduced (but fixed) payments to your creditors for a certain period (often over 5 years). At the end of this period any excess debt is written off.

There are other advantages as well including:

• The freezing of all interest and charges
• The fact that they can’t chase you for your debts
• As long as 75% of your creditors agree to the IVA the other 25% will be legally bound to accept it

The main benefit is the fact that you can write off part of your debts. Usually this will reduce your debts by a maximum of 75%. This though is more like a best case scenario.

The worst case scenario is that only 25% of the debt is written off. Most people end up somewhere in the middle.

Most people woule be looking to expect 40-50% of their debt written off, which is still a sizeable sum.

You’ll have to also take into account the fees for the insolvency practitioner, which can easily be around £6,000-£7,000.

In terms of your monthly payments these will be set at a minimum of £200 per month so if you can’t afford this don’t bother with the IVA arrangement.

The IVA though should be viewed as a last resort. If you can remortgage your house do this first. Similarly if you can reach an informal arrangement with them of make them an informal offer for full and final settlement – do this. You would be looking at a 25% write off without an IVA in place in any case if you offered to make a settlement payment.

If you do opt for the IVA and have a UK house with some equity left in it (less and less likely these days!) you’ll be expected to remortgage it anyway near the end of the IVA arrangement. In this case if the equity is significant you could end up paying all your debts in full in any case.

So whilst an IVA is certainly a good option for many you should ensure you look into it closely and take detailed advice before comitting yourself to anything.

Visit www.reduce-debt-today.co.uk for more information on how to legally and quickly reduce your debts.

Article Source: How good is an IVA at reducing your debts?