What is an IVA? A Professional Guide to Debt

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What is an IVA

When dealing with tough financial situations or dealing with loan repayments, you might have come across the acronym, IVA. Though there are many ways to repay a loan in the UK, we will discuss an IVA in this article. So, what is an IVA? We will cover the meaning of the term and share some pointers on how it works.

What Is an IVA?

An Individual Voluntary Agreement (IVA) is a legal agreement that you make with your creditors to help repay your debt. It can also serve as a way of declaring bankruptcy. Though an IVA is another type of insolvency, there are many ways in which it is different from bankruptcy.

How to Register an IVA and Arrange Payment?

A qualified insolvency practitioner must set up an IVA. This can be a certified lawyer or accountant, and you will need around £5,000 to apply for their services. The expert of your choice will come up with a solid repayment plan and submit it to your creditors for approval.

The way to repay your debt will be devised, and the repayment process can run for between five and six years. Most of the time, some parts of your earnings will be used to make repayments each month.

How Is an IVA Better Than Bankruptcy?

While bankruptcy payments are way longer than IVAs payment, there are some benefits you stand to enjoy by choosing the latter. The best advice is that IVA is way more discreet than bankruptcy and you should make it a priority. Note that bankruptcy can be made public through local newspapers, IVA will only appear publicly.

Bankruptcy, in many cases, will affect your eligibility for things such as a mortgage and other types of loans. You should also try to apply for an IVA since it helps you retain most of your assets. Anyone who has declared bankruptcy must release equity of more than £1,000 and might be forced to sell their homes. If you have registered for an IVA, you won’t have to sell your home and will release an equity of more than £5,000.

How Can an IVA Affect Credit Score?

An IVA will be maintained on your credit records for at least six years following the date on which you commenced. This means it will be there even if you repay your debt beforehand. Just like bankruptcy and other repayment methods, an IVA will have a negative impact on your credit score.

This is because an IVA indicates that you have struggled with loan repayments in the past. This means that creditors will be loath to lend you money, and since you will have minimum credit activity for around six years, it will be hard to work on your credit score and improve it during this period.

Do I Have an Alternative?

There might be no better alternative but wait until the IVA period ends. However, if you are too financially fixed, the best advice is that you consider bad credit loans. This can work if you are looking for a short-term loan within a period of six years.

The only way to work on your credit score is to pay the IVA, keeping off bankruptcy, and ensuring that your IVA is marked completed on your credit score.

The Bottom Line

We hope this post helped you know the meaning of IVA. However, before you begin arranging for Individual Voluntary Agreement, you must understand the risks involved. If you have a mortgage, you might be forced to remortgage it or contribute your personal pension payments and savings. But if you can’t keep up with IVA repayment, this will lead to bankruptcy and more financial predicament. Next time someone asks you what is an IVA? We hope you will share this post with them or give them a comprehensive explanation.

Author: Katie Cohen

Katie is a professional content writer for Technical Writers with a first class BA (Hons) Business Management degree. She acquired her experience and expertise in the finance sector of business from her time as a junior accountant. She thoroughly enjoys working in a variety of industries to gain more insight into the business world.

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