IVA Advantages and Disadvantages
IVA can be most suitable debt solution for many people, but there will always be advantages and disadvantage with respect other options. Here we explain the Pros and Cons between an IVA and Bankruptcy, Debt Consolidation Loans and Debt Management.
IVA Advantages over Bankruptcy
- Creditors agree to write off the debt you can’t afford to repay.
This is to a maximum of 70% of the original debt, provided you maintain agreed repayments for 60 months.
- An IVA in a private matter and is not advertised.
However your name and address will appear on the Individual Insolvency Register.
- You will not be subject to employment restrictions or lose your job.
This is unless there is a specific clause relating to IVA’s in your employment contract.
- You get to keep your home.
You may have to re mortgage to release equity in the final year of the IVA. In bankruptcy, you will loose your home if the equity held in it is needed to pay your debts.
- All reasonable assets can be retained.
- You may continue to run your own business
In bankruptcy, your business will be wound up and your employees dismissed.
- You may continue to be a company director.
- No question of rash or hazardous behaviour.
In bankruptcy, you may become subject to a Bankruptcy Restriction Order if the Official Receiver considers you have been blameworthy and/or reckless in contributing to your bankruptcy.
- No potential of judicial investigation into your finances.
In bankruptcy, the Official Receiver will investigate your financial affairs and report any irregularities to
the courts. This could result in criminal proceedings.
- Under certain circumstances an IVA can result in an existing bankruptcy being annulled. This is called a Fast Track IVA
IVA Disadvantages compared to Bankruptcy
- You pay back more of your debt.
This is an advantage for the creditors. The whole point of a IVA is to allow creditors to get back more of their money than they would via bankruptcy. In bankruptcy, you are only required to make payments from income for maximum of 3 years, often less.
With an IVA you agree to repay what you can afford each month for 5 years.
- You can still be made bankrupt.If you fail to maintain the agreed IVA payments, your creditors may choose to start bankruptcy proceedings against you. This may leave you in a worse financial position than if you chose bankruptcy over an IVA in the first place.
IVA Advantages over a Debt Consolidation Loan
- A portion of the debt can be written off with an IVA
With a consolidation loan, you may be reducing your monthly payments, but due to the longer terms of loan will be paying more than the original debt over the extended period of the loan.
- Your are not putting your home at risk with an IVA
If you take out a secured loan on your property, your are increasing the risk of your home being repossessed if you fail to make repayments.
- Less room for negotiation later.
If you consolidate your debts into one loan with one creditor, you will be in a weaker position to negotiate should you fall in to difficulties in the future.
IVA Disadvantages compared to a Debt Consolidation Loan
- No more unsecured credit.
While on an IVA, you can’t take any significant unsecured credit.
- Negative effect on credit record.
An IVA will be recorded on your credit record for 6 years. This is the same as all adverse information. If you applied for a mortgage during this period, you would not be offered the cheapest deals and may be required to put down a larger deposit.
IVA Advantages over Debt Management
- A portion of the debt can be written off with an IVA.
On debt management the entire debt is repaid.
- An IVA normally lasts more that 5 years.
A debt management programme for how ever long it take to clear the debt.
Debt Management advantages over an IVA.
- A Debt Management programme can be for debts of just £2,000.
£15,000 is normally quoted as the minimum unsecured debt with at least 3 creditors for an IVA. Due to our Lower Costs than most other IVA companies, we routinely get IVA approved from less than £15,000.
- Minimum payment for debt management are £100 per month.
£200 per month is the usual minimum for an IVA. However due to our Lower Costs we have placed many clients on IVA who pay less than this.
- An IVA is a formal agreement, the terms of which can be awkward to alter should your circumstances change for the better or for the worse.
Debt Management is an informal arrangement and is not legally binding for the debtor or creditor. Many companies not offering debt management solutions will point to this as a negative point. However, while creditors continue to received regular payments via debt management, they will not seek to change the arrangement. If your circumstances change, with debt management, it is easier to renegotiate payments to either higher or lower levels. If you think debt management may be the most appropriate solution for you, then call us for free advice as this is also a solution we offer.
What To Do Next
If you are experiencing debt problems and would like advice as to the best solution for your circumstances, then CALL US or submit the INSTANT ADVICE form for Immediate Free Advice.
We will explain all of the above options and explored how suitable each is for your particular circumstances.