How will an IVA affect my home?

The recent economic crises have brought many financial problems for the common people in the United Kingdom. During 2009 it was estimated that nearly 75000 houses would be repossessed due to the non-payment of the debt. In the recent years many people became insolvent with serious financial difficulties and paying off their debts has become a very tough job.

IVA was launched by the government to support these individuals to get rid of their outstanding dues.

If you owe outstanding dues to the creditors and you don’t have enough money to pay them off, you may have many questions in your mind regarding how you can legally get rid of this mess. This guide has the answers to all your questions about IVA, effects on your home and Pros and Cons.

What is an IVA?

Individual Voluntary Arrangement (commonly refer as IVA) is a formal version of a Family Agreement. It is one of the most commonly used debt consolidation methods in the United Kingdom. It is an alternative to avoid Bankruptcy introduced in part VIII of Insolvency Act 1986.

In simple words, an IVA is a formal repayment proposal by the Debtor to the Creditor, through an Insolvency Practitioner, to pay some or the full amount of the outstanding debt. It usually, but not necessarily, covers the claim of unsecured debts. IVA is flexible to the Debtor’s circumstances i.e. he has to pay as much as he can after spending his income on basic necessities of life. All the unsecured debts are written off at the end of the IVA.

If you keep up to the conditions that you agreed upon with the Creditor and make on time payments, they cannot bother you outside IVA or force you to opt for Bankruptcy.

Will I lose my home because of an IVA?

Many defaulters have this question in their mind. Unlike Bankruptcy, IVA does not directly enforce the sale of your home. However, you may have to release the equity of your property in the last year of the agreement, which is explained later in this guide. This is considered to be one of the major benefits of an IVA; eliminate your debts and keep your home.

How will it affect my rental home?

If you are a tenant, going into an IVA to clear your debts, you don not have to worry about the home. However, it is always good to check out your tenancy agreement whether your landlord has any clause regarding the tenants going into an IVA.

What part will equity release play in an Individual Voluntary Arrangement?

Equity release is a means of retaining your home (or any other asset with a capital value), and get a lump sum for that according to its value. The income provider is paid at a later stage, when you move out of that home or die.

In IVA your home is not sold but the amount of equity release may go to the Creditor in the final year of the agreement to satisfy your outstanding debt, usually the fifth year. However, if there is no equity release at the start of the IVA agreement, you have to get your home evaluated in the fourth year and in the fifth year of the agreement up to 75% of the capital value earned may go to the Creditor to against your outstanding debt.

What are the advantages of an IVA?

The major advantage offered by IVA is that your home is not at risk. The monthly payments are affordable as they are fixed according to your current income over a fixed period of time, usually five years.

All your unsecured debts in the IVA are written off at the end of the five years period. Once the process has started your creditors cannot pursue you to claim their amount outside IVA.

What are the disadvantages of an IVA?

Though Individual Voluntary Arrangement has some advantages, it has a downside as well. It is no doubt softer than Bankruptcy but you have to pay as much as you can every month, which may not be a very easy thing for you to do.

You do not qualify to get any loan during the period of the agreement. Your credit ratings suffer severely until the completion of the agreement. The payment terms are rigid and the Debtor must pay the installment agreed upon.

An IVA is not for free, whenever you decide to apply for an IVA in UK, make sure you chose a registered debt charity or an accredited IVA firm. Typically an initial consultation is free but ask all the costs involved in the process.

Highlights:

During the period of an IVA you will not lose your house or other assets. In case you rent your home, you have to check out carefully your tenancy agreement. In any case, you will be followed by a Practitioner, which will support you during five years.

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