What Are Some Of The Advantages Of An IVA?

An IVA comes with a lot of pros and cons that must be considered. The same is true with any debt solutions. In this article, you will learn about some of the pros and cons that need to be factored into your decision-making process.

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Pros:

1. Freezing Interest

One of the main benefits of opting for an IVA has to do with the ability to freeze interest and other charges. As someone that owes money to a creditor, you want to mitigate the compounding effect that interest can have on your debt. The best way to effectively do this is by freezing interest and other fees. This is exactly what you get with an IVA.

For instance, if you are dealing with a lot of credit card debt, you’re likely going to have difficulties covering the total amount you borrowed. It’s only going to be made worse when more interest is added on top of your existing debt. Once the provider adds more interest, it can make it virtually impossible for you to pay off your debt in a timely fashion.

When you opt for an IVA, you get all of the rates frozen. This means that you don’t have to worry about accruing more charges in interest and other fees. This occurs at the moment the IVA is approved too. Therefore, you don’t have to worry about your debt balance increasing over time. This can help you settle your debt much quicker and with better accuracy because you don’t have rising balances due to increasing interest.

2. You Can Make Your Payments More Affordable

A big problem a lot of people have when they are in debt is the inability to make payments because they are too large. When you get approved for an IVA, your payments will be based on whatever you can afford. This makes it much more manageable to make payments to pay down your debt because it’s based on your disposable income. To come up with the monthly payment you will be tasked with paying, they will look at everything from your income to your expenses and more. These things will be factored into the equation when figuring out the affordable monthly payment that you will be responsible for paying to your creditors.

With an IVA, your payments will be adjusted if your financial situation changes during the payback period. Therefore, it can offer more peace of mind knowing that you will have affordable payments throughout the entire period.

3. It Gives You Legal Protection

When you file and get approved for an IVA, you will have something legally binding. This means that once approved, your creditors won’t be able to take further legal action against you. This also protects you from having them ask you to make further payments that you might not be able to afford. You may require bailiff advice if this is a route that creditors have gone down.

If any of your creditors do reject the arrangement, you can have your Insolvency Practioner (IP) negotiate for you. Your IP can overrule any objections made by your creditors so long as your debt with them doesn’t make up the majority of your overall debt. Meaning, they are bound by the terms of the IVA.

4. It Protects Your Assets

One of the main benefits of an IVA has to do with the protection you get with your assets. A big concern for many with debt is their assets getting taken. When you get an IVA approved, you don’t have to worry about that. Because all of the creditors are bound to the rules of your IVA, you don’t have to worry about your vehicle or even your home getting liquidated. All of these things are taken into account when it comes to setting the various terms for your IVA arrangement.

However, those with homes may be asked to release some of the equity from their property towards the later portion of the IVA.

5. You Can Write Off Unsecured Debt That You Can’t Pay

An IVA isn’t going to allow you to completely write off the debt entirely, it will allow you to write some of it off. The remaining balances after you’ve made all of your payments can be written off.

As a result, you will not owe anything beyond that point even if you didn’t pay off your debt in its entirety. This can give you the chance to make a fresh start without having to worry about paying off any more debt. It also allows you to start the process of rebuilding your credit.

Now that you understand some of the pros that come with an IVA, it’s time to consider the cons. While an IVA is a good option for many, it might not be the optimal option for everyone.

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Cons:

1. Your Credit Rating Will Take a Hit

You can expect your credit to take a major hit when you have an IVA. Your IVA will be recorded on a register that is publically viable. It will typically be on record for at least 6 years. This means that you can expect your credit to take a major hit for a minimum of 6 years. You will be flagged by agencies and lenders during this period. It will show that you are a risk to lend money to because you’ve failed to pay back what you owe.

There will also be a marker placed on your credit file. This is going to have a detrimental impact on your credit score. Having a bad credit score can keep you from getting approved for loans and credit cards.

2. You Can’t Include All Debt

There are certain types of debt that you won’t be allowed to include in your IVA. These include:

– Student Loans

– Court Fines and Fees

– Social Fund Loans

– Child Support

You will be expected to pay all of these debts during your IVA. Therefore, if you do agree to an IVA and have it approved, you can expect these payments on top of your agreed payments.

3. You Might Need To Remortgage

If you are a property owner, you might need to remortgage. Getting an IVA approved doesn’t mean that you have to liquidate your home. But it might mean that you do need to release some equity towards the later portion of your repayment plan. This is typically done through a remortgage process.

If you cannot do this, you might have your case extended for a year.

4. Any New Funds Will Be Allocated Towards Your Payments

You can anticipate that any funds you unexpectedly get during the period of your IVA will be reallocated toward your payments. Thus, if you do get a gift or windfall from say an inheritance, you can expect it to be added to your IVA. You will have your IVA payments adjusted based on what you received. Therefore, you can expect it to be paid back to your creditors to pay back your debt.

In some cases, depending on the amount you get, it could help you pay off the debt sooner. If so, any leftover funds would be given back to you.

5. It Could Fail

There’s always the chance that your IVA could fail. If so, your IP might have to terminate the arrangement. If the IVA is terminated at any point, you would need to pay back your debt in its entirety.

At this point, any creditors that you still owe money to would have the chance to take the appropriate legal action against you. They can force you to pay back what you owe. It also unfreezes the debt. Meaning, you can start to accrue interest and other fees which can make it increasingly difficult to pay back your debt.

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