The potential pitfalls in Individual Voluntary Arrangements

IVA helpIndividual Voluntary Arrangements offer relatively safer and more hassle-free debt management solutions than bankruptcy. As it’s gaining more and more popularity in the UK, people fail to realize that this debt management solution does come with its own potential pitfalls. Here is a quick outline of this solution’s potential problems.

Risk of Failure

IVAs are designed to provide smooth and manageable means of paying off debt over the course of an agreed upon time. However, as these are legally binding arrangements, the inability to meet requirements poses the risk of the IVA being declared null and void. Should the IVA fail, the insolvency practitioner will no longer be able to represent the client thus leaving creditors to take direct action against their debtors. These actions may include the petitioning for bankruptcy. Learn Individual Voluntary Arrangements using this website

Credit Rating

Despite popular belief, IVAs are similar to bankruptcy in that they negatively affect credit ratings. Furthermore, these negative marks will remain on the individual’s credit rating for up to 12 months after the completion of the IVA. This means that during the course of the arrangement, debtors will be left unable to avail of more credit and other loans.

Adjustment of Payments

IVA helpIVAs are initially formed to suit the needs of the debtor. This means that the monthly payments will be dependent on the amount of disposable income available. However, it is a common misconception that this amount is to remain fixed all throughout the course of the IVA. In actuality, any changes in income directly affect the price of the payments. Payments will increase should the annual review reveal an increase in disposable income. The lowering of payments, while possible, solely lies in the IP’s discretion and the creditor’s decision to accept new terms.

Furthermore, IVAs generally contain clauses regarding inheritances and other windfalls. Should the individual encounter large sums of money as in prizes or family inheritance, the entire amount is required to be paid into the IVA. This poses the risk of having to pay even more than what was initially owed.

Debts not Covered by IVA

Only unsecured debts can be covered by an IVA. Secured debts, or those that are linked to properties such as homes and loans are not covered under the terms of an IVA. This being said, secured debts remain to be paid by the debtor. However, these debts will usually be considered as expenses when computing for disposable income.


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