The Realities and Many Misconceptions Behind IVAs
We live in a society where we share anything and everything. Information is easily solicited and readily provided. Despite the new and open atmosphere we have cultivated, debt remains one of the thorny issues that leaves us closed-mouthed. For some reason, it remains an uncomfortable taboo. We either refuse to talk about it openly or we remain completely oblivious to the extent of our personal debt.
Such reluctance to discuss the intricacies of debt management or ask important questions leaves us at a huge disadvantage. The more we know about managing our money and our debt, the better able we are to resolve our issues and get back on a steady financial footing.
Debt is a growing issue in our society. Despite our record low unemployment rate of 5.1%, Britain is suffering from an extremely low wage growth, resulting in a great many people suffering from debilitating debt. If you have found yourself in a situation where you cannot feasibly pay off your debts, there are various debt management options available to you; one popular solution is that of an Individual Voluntary Arrangement (IVA).
What is an IVA?
Put simply, an IVA is a legally binding agreement. To register an IVA, you need to involve a licensed Insolvency Practitioner who will formulate an agreement between you and your creditors. If you owe more than £6,000 to more than two creditors, this option is likely well-suited to you. Your financial position and assets are taken into consideration and your Insolvency Practitioner arrives at a monthly sum. This sum is then divided equally between your creditors. An IVA is completed after an average of six years, after such time your debt is written off.
Debunking common IVA myths
There are a great number of misleading debt fallacies circulating, serving only to confuse and deter people from pursuing perfectly legitimate avenues of debt resolution. To help you circumvent this myth minefield, we have collated the most commonly-held misconceptions regarding IVAs.
- You will enjoy no degree of flexibility
The monthly amount you pay to your Insolvency Practitioner is dependent on your current circumstances. The sum is calculated by taking into account things such as your salary, your investments and the value of your possessions. As such, the amount you pay each month is subject to change. You might be paying less one month than you are another, always ensuring that you are able to live comfortably. If your income reduces or there is a justifiable reason for an increase in expenditure, then you might end up paying less.
- You won’t be able to save your money
Insolvency Practitioners are well aware of life’s little surprises that can crop up in the form of dental visits or family emergencies. As such, you will certainly be permitted to save a small amount of money per month so that, should an unexpected incident take place, you have a budget to deal with it and continue life as normal. Remember that large amounts of savings will, in fact, not be possible; if they were, no creditor would agree to go ahead with an IVA.
- You will be made homeless
This is a rather dramatic and baseless myth that you may have heard in relation to IVAs. The prospect of losing your home would, quite reasonably, put anyone off the possibility of an IVA. Fortunately, it is not a reality you need to concern yourself with; your creditors are not interested in making you homeless. They want to ensure that you are living comfortably so that you can continue bringing in money to pay off your debts. It is true that if you have a huge amount of equity in your home, you may be asked to downsize to increase your debt repayments, but you will never be left without a home.
- You will be left with no means of travel
As with the prospect of you losing your house, your creditors do not stand to benefit in the slightest from you losing your means of transport. They actually want you to have your car because it means that you are better able to get to work and repay your debts. Certainly, you will be asked to sell your car and downgrade should you have a really expensive model, but you will always be able to get from A to B.
- You will be forced to sell sentimental items
Many people still believe that with an IVA, you will have to sell items such as your engagement or wedding rings. In order to repay your debt, you will be asked to sell certain valuable items, but rest assured that your wedding rings are not going to be considered ‘investment’ items and you will be permitted to keep them.
- Everyone will find out about your IVA
The only way that anyone will find out about your IVA is if you personally give another individual the authority to perform a credit check or if they specifically search on an online IVA register. This affords you a much higher degree of privacy than bankruptcy, which is still published in the London Gazette.
- If your IVA is rejected, you will have to declare bankruptcy
If your IVA proposal is rejected, it is likely due to the fact that your creditors have some reservations. If you overcome these issues, you are able to resubmit your IVA proposal and it will more than likely be accepted. However, should it be rejected, you should remain aware of your other options, one such option being a Debt Management Plan (DMP). There are always alternatives to bankruptcy.
- Your credit rating will never recover
This is an important myth to debunk, as it is certainly untrue. Your credit rating will be affected for six years from the date you file your IVA, but upon completion, your credit file can begin to recover. In your new financial frame of mind you are better able to make new and improved financial decisions that will see your credit rating climb, meaning that lenders will be happy to lend to you again.
About the author:
Yaakov Smith, a first class honours graduate of Oxford University, has almost twenty years’ experience developing and designing software. He is the CEO of Logican Solutions, a UK-based business management software company that serves to streamline processes and increase productivity. They offer a range of products, including solutions for claims management, debt management, and property portfolio management.
