Finance Equity

An IVA (Individual Voluntary Arrangement) is one option that could help people facing unmanageable unsecured debts. It’s a formal, legally binding agreement with your lenders in which you’ll repay a portion of your debt over a set number of years (usually five), after which any remaining debt will be written off.

IVAs are designed to help people who can’t keep up with their payments and have no realistic chance of repaying their debt within a reasonable period of time. You’ll only qualify for an IVA if this applies to you, and you’ll also (in most cases) need to be able to commit to regular monthly payments for the duration of the IVA. If you’re a homeowner, you may also be required to release equity from your property so you can pay more into the IVA.

But even if you do qualify for an IVA, there may be other options for tackling unmanageable debt. You should always consider all your options before you make any firm decisions. There are three forms of personal insolvency in England and Wales.

To find out if an IVA may be suitable you can use this IVA calculator.

Alternatives to IVAs

Bankruptcy

Although many people enter into an IVA because they want to avoid the downsides of bankruptcy, being declared bankrupt can actually be the best option for some.

Bankruptcy involves going to a court, which will write off your unmanageable debts if they are satisfied that you can’t afford to pay them back. Once this has happened, your lenders will not be allowed to pursue you any further for the debts, and you’ll be legally debt-free.

You’ll usually be discharged from bankruptcy within a year, although you may be required to make monthly contributions towards your debts for up to three years if you can afford to do so.

One disadvantage is that if you’re a homeowner, expensive things like your home may have to be sold so you can repay more of your debts. And as with any form of insolvency, it’ll harm your credit rating.

Debt Relief Order (DRO)

A Debt Relief Order is an alternative to bankruptcy introduced exclusively for people with relatively low debts, low disposable incomes, and little to offer in the way of assets. For a £90 fee, you’ll be protected against legal action regarding your debts for a year, after which your debts will be written off (assuming your circumstances haven’t improved).

Remember that there are strict criteria that you must meet to qualify for a DRO. Also consider that as with IVAs and bankruptcy, a DRO will have a significant impact on your credit rating, which will make borrowing more difficult in the future.

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