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IVA - pros and cons
An IVA can be a real 'lifeline': a solution to your money problems and a path to a debt-free life.
It offers a lot of significant benefits, but it also comes with drawbacks you'll need to consider. Remember an IVA is something which your creditors will have to agree to - your Insolvency Practitioner (IP) is responsible for making sure the IVA repays your debts in a way that respects their needs as well as yours.
IVA pros -
- An IVA will reduce your monthly outgoings . Payments to your IVA will be lower than the payments to your unsecured debts today. They'll be based on what you can afford to pay after you've accounted for your essential expenditure (mortgage/rent, council tax, utility bills, childcare, etc.).
- An IVA will ensure you can pay your mortgage/rent . Since your payments will be calculated to suit your current circumstances, you will always have the funds you need for your essential costs of living.
- An IVA will protect you from legal action . It's a legally binding agreement, and as long as you stick to the terms your creditors won't be able to change their minds, make you bankrupt, or take any other legal action against you once it's been approved.
- An IVA will protect your home. It's extremely unlikely you'd lose your home because of your IVA (in fact, it can protect your home, by making sure you can afford your mortgage payments). And if you're a tenant, your landlord won't even be informed you're in an IVA.
IVA cons -
- An IVA normally lasts longer than bankruptcy . Most IVAs last for 5 years, while bankruptcy could potentially be over in as little as 1 year (although it is likely you'll make payments for up to 3 years).
- An IVA will restrict your access to credit . While your IVA is in progress, you won't be able to borrow more than £500 unless your IP agrees to it.
- An IVA may require you to release equity from your home. If you're a homeowner, you may need to remortgage in the final year of your IVA so you can contribute more to the IVA.
- An IVA requires commitment to succeed . Your creditors will write off your outstanding debt if you fulfil your side of the agreement. If you don't, the IVA may fail - and if it does, you'd have to address your debts another way (by declaring yourself bankrupt, for example, or entering a debt management plan).
- An IVA will appear on your credit history. It'll stay there for 1 more year after the IVA itself has finished, and this can make further credit more expensive/difficult to obtain.
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