Pros and Cons of Individual Voluntary Arrangements (IVA)

With insolvency on the rise, UK businesses are increasingly looking for solutions for debt. For anyone facing the stress and distress of insolvency with the potential for bankruptcy, the option of entering an arrangement of your own choosing with your creditors may be highly appealing. With that in mind, if you’re considering individual voluntary arrangement, advantages & disadvantages exist.

What Is an IVA?

An individual voluntary arrangement (IVA) is a formal and legally binding agreement that enables someone in debt to two or more creditors to repay the debt over time (usually around five years) with an insolvency practitioner acting as nominee. There are some great advantages, but also disadvantages to this debt management approach.

Pros of Individual Voluntary Arrangements (IVA)

1. One of the main advantages of individual voluntary arrangements (IVA) is that they can provide protection from further court action that creditors may instigate against their debtor. This provides both psychological and financial reprieve for the person facing insolvency, with the interest of the debt being frozen once the IVA commences.
2. Another pro of IVAs is the ability to pay the debt back over time. The arrangement usually lasts around five years. At the end of the arrangement, any outstanding debt may be written off.
3. With an insolvency practitioner acting as nominee, the debtor does not have to engage directly with their creditors, which is another pro of IVAs.
4. IVAs consider the individual circumstances and day-to-day living expenses of the debtor. This flexibility is a great advantage, as there is an opportunity to repay debt, while still maintaining daily obligations. This gives both structure and viability to the debt repayment.
5. When considering IVA pros and cons, the ability to make one fixed payment each month to the nominee, rather than trying to manage multiple creditors, is a great advantage of individual voluntary arrangements.
6. Another advantage of IVAs is the potential to avoid bankruptcy and property repossession. There are caveats to that however, which we can explore further when considering IVA pros and cons.

Cons of Individual Voluntary Arrangements (IVA)

1. IVAs can be a great option, but they are expensive. The debtor needs to have a certain amount of surplus income available each month above daily living expenses in order to pay the agreed repayments. There’s also a cost for the IVA being submitted and for the nominee (insolvency practitioner) to action the IVA over the life of the arrangement.
2. It isn’t guaranteed that the IVA proposal will be accepted. At least 75% of your creditors need to approve the IVA proposal for it to be accepted and implemented.
3. While an IVA will stop further court action and freeze interest on the debt, Citizen Groups advise that creditors in the EU can still contact you and take court action even if an IVA is in place.
4. If you have an individual voluntary arrangement, it will appear on your credit file for six years.
5. Another factor to consider in assessing IVA pros and cons is privacy in that IVAs feature on an insolvency register, which can be searched by the general public. Being on the insolvency register could affect your employment especially if you work in the finance sector.
6. While IVAs are a flexible solution for debt, you do need to be both transparent and forthcoming about all assets with your insolvency practitioner. Generally, an IVA can help you avoid property repossession, but if you’re a homeowner, you may be required to make equity from the home available in the final year of the arrangement to ensure the least amount of debt is written off at the end of the term of the agreement.

Individual Voluntary Agreement: Advantages & Disadvantages

When considering solutions to debt, one option worth exploring with an experienced and professional solvency expert is an individual voluntary agreement. Advantages and disadvantages can be assessed for your individual circumstances. The insolvency practitioner can bring light to the situation, enabling you to make the most informed decision around resolving debt.

How Can Irwin Insolvency Help with Your IVA Application?

Irwin Insolvency has a team of experienced insolvency experts able to assess and discern IVA pros and cons in your individual circumstances. Contact Irwin Insolvency today for professional and tailored advice to help you move out of debt and towards a stronger financial future.

Find out more about Individual Voluntary Arrangements (IVA)

What is an IVA?

What is the IVA register?

Can you get a mortgage with an IVA?

How to apply for an IVA