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Pay off your debts with an IVA
If your IVA goes ahead, your creditors will agree to write off the remaining unsecured debt once it reaches a successful conclusion - and you will agree to repay as much as you can (normally over a 5-year period).
What would your creditors agree to?
Any creditor would rather receive every penny they're owed. But depending on the circumstances, they know this isn't always possible within a reasonable time.
If you can't repay the money you owe, your creditors have the option of taking you to court or even trying to make you bankrupt. However, where you simply can't afford to pay everything you owe, creditors know they'll receive more money if they agree to accept regular payments for five years.
This is why creditors will often approve an IVA, even though it means writing off some of the money you owe them at the end of the IVA.
- Your creditors will receive more than they would if they tried to make you bankrupt,
- It will avoid the need for time-consuming, expensive legal action, and
- An Insolvency Practitioner (IP) will be involved - an expert who's required to make sure the IVA is fair to both borrower and lenders
Insolvency - 3 ways to tackle your debts
If you can't afford to repay everything you owe, you may be able to write off a portion of it by declaring yourself insolvent - by entering an IVA, for example. An IVA is just one of three kinds of insolvency. Here are some some options to consider:
If you're made bankrupt, you'll basically hand over control of just about all your assets (property, money, shares, etc.) to an Official Receiver (OR), who'll make sure each creditor gets a fair share of what you own. In return, they'll write off your outstanding debt.
With an IVA, you can protect your home and repay your debts in monthly payments that are tailored to your financial situation. An IVA usually gives you five years to pay your creditors as much as possible every month (once you've accounted for your rent/mortgage, utility bills, petrol costs, etc.) on the grounds that they'll write off the balance of your unsecured debts at the end.
So an IVA can work well for you and your creditors:
- You'll avoid the consequences of bankruptcy, and
- They'll get more of their money than they would through bankruptcy
Debt Relief Orders were introduced in April 2009 to help people who can't enter bankruptcy or an IVA. A DRO costs just £90 to enter (as opposed to bankruptcy's £510) and doesn't require regular monthly payments (as an IVA does). However, it's only appropriate for people in very specific circumstances - who owe less than £15,000, for example, don't own a home and have virtually no assets or disposable income.
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