There are several debt solutions available to those who have fallen into debt, but finding the right one for you can be confusing - particularly at a time when you may feel vulnerable and stressed, and have probably had enough of dealing with paperwork and mounting debt.
Debt is a massive problem in the UK. Millions of Brits are laden down with personal debt from their credit cards, loans and bank overdrafts.
If your debts begin to add up and become unmanageable, you can soon find yourself in a very difficult situation - where creditors are sending you worrying letters and the monthly interest added to your debt offsets the level of repayment you can afford.
If you're struggling with unmanageable debts, you may be eligible for one of several options - debt management, for example, or an IVA (Individual Voluntary Arrangement).
Below, we offer a simple introduction to one of these debt solutions: an IVA.
An Individual Voluntary Arrangement (IVA) is a legal contract between a borrower and their unsecured creditors.
To qualify for an IVA you will need to be struggling with unmanageable debts - that you don't think you'll be able to repay within a reasonable period of time. You'll also have to be able to commit to making regular reduced payments towards the debt.
If you enter an IVA…
An Insolvency Practitioner (IP) - the person 'in charge' of your agreement - will work out what you can afford to pay back each month and put this to your creditors in your 'IVA proposal'. It's important to note that in order for an IVA to begin, 75% of your voting creditors (by debt value) will need to agree to the terms.
If enough of your creditors agree, the interest on your debt is usually frozen.
If you're a homeowner, you may be required to release equity in your home during the final year of the agreement. What's more, because you're entering an insolvency procedure, your credit rating will be affected - which could make it harder and/or more expensive to obtain further credit for six years.
Another thing to bear in mind is that if you fail to make your IVA repayments (or do not follow the terms of the agreement) your existing creditors can, if they deem necessary, petition for your bankruptcy. However, if you're unable to make your repayments because your circumstances have changed slightly, you may be eligible for an IVA variation (a change in the terms of the agreement that will allow you to continue making payments towards your debts).
If you can stick to your agreement, though, and your IVA draws to a successful close (usually after five years), the unsecured debt you couldn’t afford to repay will be written off.