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Falling behind on your debt can be overwhelming. Whether you’re behind in your personal obligation to creditors, or a small business that struggling to meet your financial demands, there eventually comes a time when bankruptcy appears to be the only option. However, in England, Wales And Northern Ireland, both individuals and business entities who are at least £5,000 in debt can enter into a contract with creditors knowns as an Individual Voluntary Agreement (IVA) as a formal alternative to bankruptcy. Established by the Insolvency Act of 1986, an IVA is a formal, legally-binding repayment plan established between a debtor and their creditors through a third party known as an insolvency practitioner (IP).

Working with an Insolvency Practitioner

Before setting up an IVA, it’s important to know that only a licensed IP can be appointed to set up formal insolvency procedures for both individuals and businesses. An IP will request a complete and detailed explanation of your financial situation, including all assets, debts, income and creditors. You and your IP then work to determine what you can afford to pay creditors in addition to formally set up how long your Individual Voluntary Arrangement will last. Once the parameters of your IVA have been put in place, your IP will contact each of your creditors individually. Any fees incurred during the IVA are incorporated into the agreed monthly repayments’

Types of Debt You Can Include in an IVA

Before entering into an IVA process, it’s important to understand what types of debt you can and cannot include your IVA agreement. Debts you can pay into the IVA include energy debts and some council tax arrears, and tax debts. Your IVA cannot include child support debts, student loans, magistrates’ fines, or defaulted student loans.

Advantages of an IVA

There are a variety of advantages to getting an IVA for individuals and companies with serious debt problems. Firstly, you only have to pay back an agreed upon percentage of your entire debt. In addition,  Opting to enter an IVA set and agreed number of years. After which, If you have successfully Satisfied your IVA commitments, your remaining balances on your debts will be erased. Most importantly, IVA’s are affordable as the repayments are tailored to your own specific income and outgoings. When creditors enter into an IVA with you, it prevents them from taking further legal action and from contacting you to demand payments.

Disadvantages of an IVA

While the majority of IVA requests are accepted, creditors have no legal obligation to agree to it. As such, no IVA agreement is guaranteed until you are granted written confirmation from your creators. Entering into an IVA is a formal, legal arrangement. Failure to comply with payments means that your agreement will default, leaving bankruptcy as the only remaining options. Lastly, an IVA will be recorded on your credit reference file for six years and can negatively affect your ability to get credit in the future.