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Homeowner Debt Solution – Individual Voluntary Arrangement (IVA)

Debt Relief

In hard times, bankruptcy can sometimes seem like the only solution. But an Individual Voluntary Arrangement (IVA) may help some people resolve their financial difficulties without resorting to bankruptcy. In the UK, the government created IVAs in order to help people rid themselves of their debts as quickly and affordably as possible. If the debtor is unable to pay any amount, it is written off by the creditor.

IVA Process

The first step is determining whether the IVA is the best answer for the debtor. Once that has been established, the income vs. indispensable expenses (such as power and water) ratio is determined. Any leftover balance is earmarked for the repayment of debt, and a sixty-month installment plan is arranged. Next, the creditors are all called together for a meeting, in which at least 75 percent must agree to accept the terms, or the plan will be rejected. If enough creditors approve the plan, even those who did not vote for approval will be bound by the IVA. Once approved, the debtor makes those sixty monthly payments, and any amounts remaining after such time are written off. One year after the last payment is made, the IVA will no longer appear on the debtor’s personal credit report.

Advantages of an IVA

The primary advantage of an IVA is that it prevents the loss of the debtor’s home, although the debtor will be expected to obtain a remortgage of up to 80 percent of the home by the end of the fourth year. Up to 75 percent of the total debts may be written off under the terms of the IVA, and creditors are prevented from harassing or even contacting the debtor, so long as payments are made on schedule during the term of the IVA.

Disadvantages of an IVA

Only those debtors who have a serious amount of debt should consider an IVA. Persons with debts totaling less than £15,000 will not really receive any benefit from an IVA. Debtors are usually expected to pay a minimum of £250 per month for sixty months in an IVA. Should the IVA fail, the debtor can be declared bankrupt, regardless of how close to finishing the agreement they have come.

Steps to an IVA

If you are considering entering into an IVA, here are the steps you will be taking:

  • Discuss your situation with a debt specialist;
  • Contact an Insolvency Practitioner to make sure an IVA is the right choice;
  • After the IVA has been prepared and filed by the Insolvency Practitioner, he or she should contact your creditors to let them know that this is your plan.
  • Creditors meeting will take place; if at least 75 percent approve the plan, your debts’ interest will be frozen and contact with creditors will cease for the life of the IVA.
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