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Deciphering IVAs: Good or bad?

An individual voluntary arrangement (IVA) is a legally binding agreement between a creditor and borrower where the borrower promises to pay the creditor what they own over a fixed period of time, usually in regular installments. In England and Wales, you must convince at least 75% of all your known creditors to accept IVA deals in order to have an IVA effected. But, are IVAs really good or bad for you?

When IVAs are considered good

IVAs are good or bad, depending on your personal circumstances. If you can keep up with your IVA payments, then IVAs are probably a good option for you. When your IVA payments are over, your debts will be wiped clean and you can start over on a clean slate.

If declaring yourself bankrupt would be devastating or is totally unacceptable to you, then the IVA option is, again, probably a good option to resolve your debt problems. With IVA, your creditors will not be able to make you bankrupt, which helps with maintaining a healthy credit standing.

However, if you can't keep up with IVA payments and have few assets, then IVAs may not be the best option to solve your debt problems. Filing for bankruptcy is likely the best option for you.

Reasons to try IVAs over declaring bankruptcy

There are two main reasons you may want to try IVAs when faced with insolvency instead of declaring yourself bankrupt:

1. To protect an income source

Career fields like finance and politics will not allow you to practice your profession if you are declared bankrupt. In this case, you may have to enter in to an IVA to protect your career. IVAs create the opportunity to talk to and reach an amicable agreement with creditors regarding owed debt. Take this option to avoid bankruptcy and the loss of an important income source.

2. To protect your assets

If you own property or assets with equity, you are likely to lose the property to a creditors’ auction if you became bankrupt. However, if you were to apply for an IVA you would get the opportunity to propose to creditors how to deal with your debt problems and or outline how to release asset equity, such as equity in a home. In this way, you can protect your assets from being sold forcibly.

Take away

IVAs can either be good or bad, depending on how your apply them. Carefully analyse your personal circumstances to determine whether IVAs are good or bad in your particular case. You may have to talk to a debt adviser to clarify any questions you might have and to get professional advice on how best to deal with your debts. Keep in mind all IVA advisers are rewarded financially each time they refer an IVA client. So, choose your financial advisors wisely.

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