Guide on personal finances: How does the IVA plan work?
IVA stands for Individual Voluntary Agreement. It is an agreement between a person and a creditor. Under the agreements, the person must pay all the debt in monthly installments in a given time. The agreement is legally binding in court; you and the creditors have the stick to it till the term of the agreement ends.
The purpose of the IVA is to help people pay off the debt in a systematic way that prevents them from becoming bankrupt. If you are living in the UK, IVA can help you pay off your debt quite conveniently.
How does an IVA plan work?
A lawyer or an accountant, called the insolvency practitioner, draws up the IVA between you and the creditor. The insolvency practitioner often works as an intermediary between you and your creditors for the duration of the IVA agreement, which is typically five to six years. An insolvency practitioner also charges a fee for their services, which the person who pays the loan has to bear.
The practitioner will work out a repayment plan with you. The person who pays the loan has the option to pay back the money in installments or a lump sum amount. Since the insolvency practitioner is your point of contact, he/she will be the one collecting the payments on behalf of the creditors.
There may be more than one creditors involved. Hence, the practitioner will be responsible for distributing the money between them. The practitioner may also keep some amount as their fees. Keep in mind that if you are unable to make the payments on time, your insolvency practitioner may terminate the contract. You may have to file for bankruptcy in this case.
Benefits of IVA
There are several ways that IVA protects individuals from becoming bankrupt or facing legal action. Here are some benefits of IVA:
If you have a debt of more than £10,000, IVA is a good option for you.
If you cannot pay the rest of the debt by the end of the agreed term (and you were paying the monthly payments), the unpaid debt is considered as paid. You don’t have to make any more payments.
After agreeing to an IVA, you only have to repay a fraction of the total debt to the creditors. Hence, it virtually allows you to become completely debt-free in five to six years.
The insolvency practitioner ensures that the monthly debt payments are as per your affordability. Your income and monthly expenses are taken into consideration before finalizing the IVA. Hence, there is no reason to worry about the repayments being too high.
Another reason why you should invest in IVA is that it protects your real estate even if you have a debt to pay. That way, you do not have to mortgage your home or bring your property into the IVA. Also, by signing the IVA, the creditors cannot take any legal action against you.
In addition to this, the interest rate is fixed and not liable to changes with time. So you can make the payments without having to worry about any additional amount.
The insolvency practitioner assigned to you also provides financial advice, so you are never alone. If you are living in the UK or living in the US (with debt in the UK), visit the IVA Plan website for more information.
IVA has several benefits that protect you, which is often rare. If you could not pay the money to creditors in the past, you can do it in a few years with an IVA. Many people in the UK opt for IVA because of these reasons.