For those who don’t know what IVA stands for, it’s short for “individual voluntary agreement.” It’s an agreement that is made between a lender and a borrower. IVAs are legal documents and they must be approved by the court to be viable. Simply, the agreement is a payback plan or schedule for the borrower to give the lender their money back. An IVA is one of the best options to many out there but it does come with some risks that make it the last choice of a few others. Not everyone can apply for an IVA as there are some requirements like having a regular income and a big sum of credit that needs to be paid back.
To help you understand whether an IVA would be valuable for you or not, we’ll demonstrate what you need to take into consideration to be able to benefit from an IVA.
How is it Done?
An IVA is a form of insolvency which means that the borrower is unable to pay the creditor the money they owe them. Since it’s a legal document, it must be prepared by a lawyer or an accountant to be valid. The borrower works out a plan with their lawyer or accountant to repay the money that they owe. For the IVA to be valid, all the creditors must agree on accepting all the details in the plan. Before you visit a practitioner, there are some other ways to find out more. If you want to see if you qualify for an IVA, you can use the calculator at https://www.scottishtrustdeed.co.uk/ to quickly see the results. You’ll be prompted to enter some details like your income, number of companies you owe, and the amount you owe. Most practitioners will deduct a fee from the monthly payment so make sure you talk with your practitioner about their fees before going with them.
Affordable Consolidated Payment
One of the best features of an IVA is the ability to pay a single monthly payment to your practitioner instead of paying to creditors separately one by one. Since the plan is based around your income, the monthly sum you pay is going to be affordable in contrast with your income, leaving you with enough money to maintain your quality of life. It’s worth mentioning that once your creditors sign the agreement, interest on the debt is frozen and there is no way to add any extra interest or late payment fees.
Fixed Date
Most IVAs last up to 6 years. A fixed date is set and once it comes the agreement will be completed and you won’t owe anything as long as you have honored the agreement and paid the required amount. Sometimes borrowers can reduce the length of an IVA by settling with a large sum. Any outstanding debt is removed once you make the final IVA payment. Knowing what to expect is one of the greatest benefits of an IVA.
Legality
An IVA is very powerful as it’s a legally binding agreement. The IVA doesn’t allow your creditors to come after you with legal action or force you in any way to pay your debts. This doesn’t mean that you shouldn’t pay, but it provides a certain safety net for you. Your properties should be safe and won’t be taken by your creditors.
Better Alternative to Bankruptcy
If you own a limited liability company, an IVA is a much better solution than declaring bankruptcy. One of the problems of bankruptcy is that it forces the borrower to resign from their post from the company they own. In bankruptcy, there is a very high possibility that your home will be sold to repay your creditors. An IVA will allow you to keep your post at your company while ensuring that your home is safe from being taken.
Disadvantages
The IVA doesn’t only come with benefits and advantages but also some disadvantages that you should be aware of. It’s important to note that your credit rating is going to take a significant dip for the following 6 years as the IVA will be recorded in the credit file. If your income increases, you’ll have to pay your creditors more money; this doesn’t shorten the duration of the IVA. If you fail to pay your IVA payments, you may be forced to go bankrupt. Remember that at least 75% in value of the creditors should agree to the IVA plan.
IVAs can be a true life-saver for many people under crushing debt. There is no shame in admitting that the problem got out of hand and proceeding to deal with it properly. When you’re weighing your options, always consider the pros and cons of any deal that’s made with your creditors.
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