Debt problems soaring? – How can an IVA be of any help?

Debt problems soaring? – How can an IVA be of any help?

As per the reports by The Guardian, on average, each of the UK families is said to owe almost £8,000 in unsecured credit. If the current numbers are compared to that of the previous quarter, it would be seen that the debts have soared by 50% at the most. This form of unsecured debt problems has led to negativity amongst the people, and most of them are said to believe that they would not live to see themselves debt free ever again.

The unsecured debt problem and IVA

While secured credit in any form is considered to be one of the safest options for one and all, unsecured credit from the beginning has been considered to be the time bomb, ticking away with all its’ might. So, it is always wise of you to control the way in which you have been using our credit cards and any of the other unsecured accounts. Now, what if you already find yourself in an unsecured debt problem?

The Individual Voluntary Arrangement or IVA is as one of the apt alternatives to bankruptcy. It is one of the legal agreements between you and the creditors. As per this agreement, your creditors are required to accept a lowered amount with regards to the debt which is owed by you. So, in UK, you can take the advantage of the IVA so as to repay your debts and also avoid filing bankruptcy. IVA in general is looked over by an insolvency practitioner.

Individual Voluntary Arrangement types

In general, there 2 types of Individual Voluntary Arrangement.  Details on these 2 solutions are as discussed below:

  1. The Full and Final settlement – In case of this type of IVA settlement, you are required to make a large and single payment to the creditors, to whom you owe money to. The creditors are required to accept the said amount as the only ‘full and final settlement’. Therefore, this process is also known as the lump sum IVA.
  2. The Standard IVA settlement – This is the type of IVA in which, you are required to make monthly payments on a fixed basis, and this is supposed to go on for 60 months. All of the creditors will have to receive at the least 25% with regards to the outstanding amount owed.

Advantages of the IVA programs

There are various advantages of the IVA programs. Other than benefiting the debtor, IVA is one of those programs which are also advantageous for the creditors too. Following are some of the advantages for both the debtor and the creditor.

For the debtor:

  • There are no restrictions with regards to application for personal credit – There are actually no form of restrictions which can help you in obtaining personal credit. However, it may still seem to be difficult to get any form of new credit even if you file IVA.
  • You can continue trading – A sole trader can go on to continue with the trade in order to generate some income, so as to make the debt repayments.

For the creditor:

  • It is quite cost effective – The costs with regards to the administering IVA are low if compared to the cost of filing bankruptcy. So, higher returns are possible.
  • You can claim VAT and tax relief – IVA is a kind of insolvency procedure. So, the creditors do have the option to reclaim VAT and tax reliefs on such bad debts.

However, there can be some negative effects of this process on your credit. Still, if you are deep in debt, this can be considered as one of the best options for you.

Image credit: Chris Potter

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