An individual voluntary arrangement is an alternative but formal way of paying off all or part of one’s existing debts. This type of arrangement is legally sound and requires participation of all parties involved. Here is some more information on this topic:
In depth look at an IVA
An IVA is a debt repayment plan that involves three major parties: debtor, creditor/s, and an insolvency practitioner (IP). Individuals can use voluntary debt arrangements to avoid bankruptcy proceedings. However, such an arrangement can only succeed if majority of creditors accept a revised debt settlement plan that may or may not include partial payment of their money. One can enter into an IVA before or after issuance of a bankruptcy order.
How an IVA Works
In the event you were unable to meet your monthly debt repayment obligations, you would need to consult a qualified insolvency practitioner immediately to evaluate your debt burden, financial health, and offer debt help by creating a reasonable credit management plan. After this, the practitioner would then contact your creditors and present them with a new credit negotiation plan. In general, creditors who hold at least 75% of your debts must accept the new repayment plan for it to become legally binding. Unless there are highly contentious issues, most creditors back this type of credit settlement because it guarantees them some money. After signing on the dotted line, creditors wait to receive their money as per the agreement brokered by your insolvency practitioner.
The biggest advantage of entering into this type of debt negotiation is peace of mind. You do not have to worry about calls from creditors demanding their money back because they can only communicate with your insolvency practitioner. All you have to do is pay agreed amount of money to your IP who in turn redistributes it to creditors. Additionally, all the legal proceedings instituted by creditors to recover their money would be withdrawn. Another benefit is it allows one to make a single affordable monthly debt settlement over a period of 60 to 72 months. This means you do not have to worry about interest rates tied to multiple debt repayments. A third benefit is avoiding the stigma associated with bankruptcy proceedings. For entrepreneurs, the fourth benefit is they can continue to run their businesses. A fifth major benefit is freedom of selecting the assets to include in a revised debt payment plan. This is because, unlike bankruptcies, voluntary credit arrangements, are designed to suit a debtor’s financial situation.
It is also worth noting that a voluntary credit settlement plan allows one to repay some but not all existing debts. This means you do not have to repay every single penny owed to creditors. Struggling debtors will be pleased to learn that the cost of entering into a voluntary debt management plan is lower than the cost of bankruptcy. Finally, agreeing to repay creditors voluntarily allows one to keep his/her home. This is not the case in a bankruptcy where assets vest in the appointed trustee.
To start with, your insolvency practitioner can terminate the debt plan agreed with creditors if you fail to make regular debt payments.This means creditors can re-institute prior legal proceedings to recover their money. Another drawback is it can affect your future employability chances. The third, and possibly the most damaging disadvantage, is the negative impact a voluntary credit management plan can have on your credit rating for up to six years. In addition, personal details including name and address will be publicly accessible further damaging your personal reputation and making it hard to enter into financial transactions.
It is important to note that this type of debt repayment does not cover all types of debts. As such, you would still have to pay student loans, fraudulently acquired debts, as well as court ordered settlements and fines. Moreover, a voluntary debt plan only covers unsecured debts worth at least £15,000. Homeowners may have to re-mortgage their properties at least six months before end of their IVAs or agree to make 12 additional payments.
Your financial situation can become shaky after losing a job or if faced by mounting medical bills making it hard to make regular debt payments. To avoid bankruptcy, you can hire an insolvency practitioner to renegotiate with creditors to accept revised debt payment terms. Such an arrangement has benefits like avoiding communicating with creditors and keeping real estate assets such as a home.