With an IVA you agree with people you owe money to that you’ll only pay what you can afford. That means a single payment each month over the five year period. People you owe money to agree to write off the debt you can’t afford to repay and leave you alone. An administration order can be requested if you have at least one judgement, at least two creditors, your total debts are no more than £5,000, and you are finding it difficult to organise your payments.

IVA Pros

• Private individuals on their own or with a partner, and sole traders can all qualify for an IVA. So can people in certain positions and professions who are not allowed to be made bankrupt.
• It is a legally binding agreement which means you will be protected from further action by your creditors.
• You can safeguard your property (unlike in bankruptcy).
• The IVA normally runs for five years.
• It runs for a fixed period (usually for five years), but sometimes less if people’s circumstances change for the better.
• You are allowed to open a regular bank account with no overdraft facility so you are in control of your finances.
• In an IVA all you pay is the amount you can realistically afford, each month for the period of your arrangement (usually 60 months), and that is literally all you have to pay as long as you keep up the payments. In return, your creditors agree to write off the debt you can’t afford to repay and pay our fee out of the payments you have made to them.

IVA Cons

• If your total unsecured debt (e.g. credit cards, loans, etc but excluding mortgage if you have one) is less than £15,000 you will not qualify.
• If you fail to keep to the terms of the IVA your creditors can take further action, and this may result in bankruptcy.
• If you have equity in your house (i.e. it is worth more than you paid for it) you will have to make best endeavours to remortgage towards the end of your IVA and release funds to your creditors. Don’t forget, your creditors are still writing off the debt you can’t afford to repay and the alternative could well be bankruptcy whereby you could lose your property altogether.
• The IVA stays on your credit history for one year after your IVA ends. This may affect your credit rating although some lenders view your proven ability to make regular payments over 60 months favourably.
• In some cases it could run for six years (approximately 5% of cases).
• You are not allowed to borrow during your IVA.
• If you fail to keep to the terms of the agreement, your creditors can take further action, and this may result in bankruptcy.