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Individual Voluntary Arrangements

Getting out of debt is much harder than it was to get into debt. Many people are in the situation of not being able to pay their bills. They may have lost income due to unemployment or an illness. They may have just gotten in too deep to get out on their own. There are solutions to get out of debt. If you are willing to put up with bad credit for a period of time you might want to try to get an IVA or a debt management plan. If you are working, have collateral you can use and your job is steady you can try debt consolidation. As long as you keep up the payments on a consolidation loan your credit will get positive hits on it.

If you have 15,000 pounds of debt that is unsecured and you owe money to at least three different creditors you may be able to use an IVA. This stands for Individual Voluntary Arrangement. With an IVA you can pay off your creditors for mere pennies of what you actually owe. An IVA is a legal and binding contract between you and your creditors. It is for this reason that an insolvency practitioner must be used.

The IP will talk to the creditors and see if he can get 75% of them to agree to the IVA. If one creditor, who you owe more than 25% of your debt to, disagrees, then you cannot apply for an IVA. Most of the time creditors will accept it however. You will pay a small portion of what you actually owe. The amount you pay back will go by your income. If you own a home you may have to use the equity in it to pay some of this debt. If your income goes up you will pay more as well. The IP will check your income for changes periodically.

There is a chance, depending on your income and equity that you will only have to pay back 75% of what is actually owed. You will make one monthly payment that you will pay for the next five years. At the end of the five years you will be debt free. An IVA does affect your credit score in a negative way and can affect it for about six years.

This is still a shorter period than a bankruptcy. A bankruptcy will affect your credit for ten years. Paying on a bankruptcy takes less time than an IVA but the credit report makes you wonder if it is better. When you file for bankruptcy you are also going to want an attorney who knows all there is to know about the process. This is going to cost you money. Nowadays it is harder to file for chapter 7 which will forgive nearly all your debt. Instead you will probably have to file chapter 13. You will have to pay back a portion of your debt. It is usually a very small portion. Your creditors will usually allow an IVA since they tend to lose a great deal of money with a bankruptcy.

An IVA has many good points. It is not advertised in the papers like a bankruptcy is. This means no one has to know about it. It won’t affect your job like a bankruptcy could. There are certain job positions that you will lose if you have a bankruptcy on your record. You will pay back what you can afford. You will not lose your home or automobile like you could with a bankruptcy and the creditors will not be able to harass you any longer. Since an individual voluntary arrangement is legally binding, the creditors have to stick to the agreement as long as you keep up your payments.

Filling an IVA is a better idea than doing nothing. If you decide to default on your loans, the creditors can come after you with lawsuits and harassing phone calls. When you default on a loan your credit score will take a crushing blow as well. It will remain bad for many years. If you are sued by a creditor the courts can decide to take the money directly out of your pay check. An IVA can work for you and your payments will be affordable. In five years you will be debt free and back on your way to having good credit again.