Debt Information: What is an IVA?

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Many people in the UK have debt problems. Some in the form of mortgages, others credit cards. Paying back the amount borrowed can be difficult if personal circumstances change, with interest added on, it can seem like there’s no way out.

During times like this, an IVA may seem like the solution to put things right or find a way to tackle the issues. An individual voluntary arrangement is a formal agreement which is binding upon the borrower and the creditor.  Governed by the Insolvency Act of 1986, the agreement allows the individual to pay back the money owed at an affordable cost. During this time, creditors will not be able to contact the individual who will be protected from any legal action or in some cases bankruptcy. Any interest which was set out in the original agreement will also be frozen.

In order to be eligible for IVA, the individual must have debts in excess of £12,500. This amount must be between two or more creditors. A regular household income must also be shown. Those who meet the criteria and are struggling to keep up with instalments to the creditor can apply for an IVA.

After the agreement is made, monthly payments will be calculated to be paid each month. An IVA is the amount of income minus necessary living costs. This allows the individual to pay back what they can afford rather than what is being demanded by the creditor.

There are many advantages to setting up this agreement, for example in most cases the individual can be debt free within 5 years with one single monthly payment.  Individuals have a legally binding contract which is a form of protection from court orders and also, as already mentioned, interest will be frozen. Telephone calls and payment demands also stop – for those struggling with the stress of debt this provides peace of mind that is priceless.

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