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Debt Management   IVAs   bankruptcy   Debt Consolidation

IVAs

Firstly: a word of advice. Please beware of companies that suggest that they can reduce your debts by up to 95% with an IVA. It is indeed possible in the same way that it is possible to swim across the English Channel but very few people manage to do that, either, and a court will normally refuse to accept such an unreasonable reduction even if the creditors are prepared to. How much you will be able to write off will depend upon your ability to make monthly payments and what your creditors are prepared to accept - as a very rough rule of thumb this varies between a 25% and 70% reduction. Some creditors refuse to accept IVAs as a matter of policy although a skilled advisor can sometimes persuade them that it is in their best interests.

If you have unsecured debts totalling over 15,000 to three or more creditors, which you can't possibly repay, then bankruptcy may seem inevitable but, provided that you could reasonably afford to pay at least 250 monthly into a fund there is another legal option called an Individual Voluntary Arrangement (IVA) which may give better protection to your home or other assets, which (unlike a bankruptcy) is not advertised in the local paper, and which has far less social stigma. You would still be able to trade and hold a bank account, you would have more control over which, if any, of your assets were given to your creditors, and administration costs would usually be a lot less than those of bankruptcy proceedings. You would be expected to make an offer to repay a proportion of your debts over about five years by regular monthly payments which you could reasonably be expected to afford, and at the end of the five years the remainder of the debts would be written off. You would need to have the agreement of 75% of your creditors by value for the scheme to be set up and since everything in this world is negotiable you would possibly have to offer to realise any of your assets to help towards paying your debts although this would normally be done at the end of the scheme rather than at the beginning, as in the case of a bankruptcy. The scheme would have to be administered by a licenced insolvency practitioner and registered with your local county court and yes, it would have an adverse affect upon your future ability to obtain credit but, probably, less than a bankrupcy would. As ever in such matters you need to take good, qualified advice to decide on whether or not to apply for an IVA.

The benefits

  • You would be in charge -  you could choose your own insolvency practitioner and would have to agree with any proposals which were put to your creditors.

  • Once creditors for 75% of the total that you owe have agreed to the scheme it is binding upon the rest so no-one can take any action against you arbitrarily.

  • All harrasment from debt collectors and bailiffs would have to stop.

  • You would make one affordable payment only each month rather than multiple payments.

  • Interest payments would be frozen automatically.

  • If you were self employed you could still run your business, provided that you did not incur any more credit.

  • You could still hold a bank account.

  • Everything would be negotiable. If you owned your own house it is possible - not definite - that you could be asked to contribute some of the equity in it to your creditors but this would be done towards the end of the scheme so you could have time to make other arrangements such as a remortgage. The sum you would be expected to pay would usually be based on the valuation at the time the agreement was drawn up, not on the value several years later so you could have the full benefit of any increase in value.

  • If you were able to pay a more substantial sum every month it could be possible to exclude your house from the scheme completely, subject to your creditors' agreement.

  • Many jobs are barred to people who have been declared bankrupt - this is not usually the case for IVAs.

  • At the end of five years any outstanding debts would be written off.

  • You would not have to inform your employer, friends or neighbours.

The drawbacks

  • It would be essential to keep up with your monthly payments into the fund otherwise your creditors could have the option of proceeding to bankrupt you.

  • You must be completely honest with your creditors and make a full declaration of your assets.

  • Your insolvency practitioner could require you to increase your payments if your circumstances improved considerably.

  • An IVA normally lasts for five years, against a minimum  12 months  for a bankruptcy (more usually 3years) .

Conclusion

Provided that you could reasonably expect to make a regular monthly payment of, typically, 250 - 400 a month (subject to your own circumstances) for the next five years an IVA is an alternative to bankruptcy if you owe a substantial sum which you cannot repay, and it could give you the chance to save your home and livelihood, and give your creditors a greater return than they would get if you were bankrupted.

 

Debt Management   IVAs   bankruptcy   Debt Consolidation

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