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For people in the UK who experience serious debt problems, there is a
solution that is not available in any other country. The individual voluntary
arrangement, which is also known as an IVA, was brought in as a way to give
businesses an alternative to going bankrupt. Its main use now, though, is as a
consumer debt solution for people whose situation is particularly bad.
What the IVA will do is allow you to make regular payments towards your debts, based on how much you can afford. You do this for up to five years and after that you are debt free, even if you have not repaid your debts completely. The debt left unpaid gets written off, which usually means you end up repaying only about half of what you originally owed. The IVA therefore makes it possible to get rid of debts that you really cannot afford to pay back in the normal way. The only alternative in this situation is bankruptcy, and most people who use an IVA will have at least considered that as an option.
It should be understood that you should not set up an IVA lightly, as it is a legally binding formal agreement. An individual voluntary agreement is not something informal like a debt management plan and is more complicated and expensive to set up. When you apply for an individual voluntary arrangement your creditors will be asked to vote on whether they want it to go ahead or not. One of the strengths of this debt solution is that you just need the agreement of creditors who hold seventy five percent of the debt for it to go ahead. What is more, all other creditors are legally bound to join the agreement too if you reach that critical 75% support.
This is a very good way to make sure that all of your debts are included in the plan. It is also one of the significant differences between an individual voluntary arrangement and a debt management plan, because the latter has no way to force creditors to join if they do not want to, so you could only be dealing with part of your debt. The other aspect of having a legally binding agreement is of course that it works both ways. You too are bound by the arrangement much more so than with a debt management plan. You cannot easily get out of it if your circumstances change for example.
While it may sound like an appealing idea to be able to write off up to three quarters of your debts, not just anyone can apply for an IVA. The arrangement will not work if your circumstances are not appropriate, and unless you have at least £15,000 worth of debts the costs involved in setting one up are not really justified. To be eligible you will need to have that as a minimum amount of unsecured debts, usually to at least three different creditors. You will also need a source of income that allows you to make a decent monthly payment towards your debts. The company you apply to for help will look at your financial situation to assess whether you have enough income left after your essential expenses to make a reasonable payment towards an IVA.