An individual voluntary credit agreement, commonly known as an IVA, is a legal agreement between an individual and their creditors. It is a debt management solution for individuals who are struggling to repay their creditors and want to avoid bankruptcy.
IVAs are typically used by individuals who owe more than £20,000 to two or more creditors and are unable to pay their debts as they fall due. The agreement is set up by an insolvency practitioner, who acts as a mediator between the individual and their creditors.
The insolvency practitioner will work with the individual to assess their financial situation and develop a repayment plan that is affordable for them. The repayment plan will typically last for five years, during which time the individual will make regular payments to their creditors.
An IVA is a legally binding agreement, which means that both the individual and their creditors are bound by its terms. This provides certainty to both parties and ensures that the individual can make progress towards repaying their debts over time.
One of the key benefits of an IVA is that it can help to protect an individual`s assets, such as their home or car, from being seized by creditors. This can provide peace of mind for individuals who are at risk of losing their assets due to their financial situation.
Another advantage of an IVA is that it can help to improve an individual`s credit score over time. This is because the individual is making regular payments towards their debts, which demonstrates to lenders that they are committed to repaying their debts and managing their finances responsibly.
However, it is important to note that an IVA does have some drawbacks. For example, the individual`s credit score will be negatively impacted during the period of the IVA. Additionally, if the individual fails to make their payments under the agreement, their creditors may take legal action against them, which could result in bankruptcy.
In conclusion, an individual voluntary credit agreement can be a useful debt management solution for individuals who are struggling to repay their debts. It provides a structured repayment plan that is affordable for the individual and helps to protect their assets from being seized by their creditors. However, it is important to carefully consider the potential drawbacks of an IVA before entering into an agreement.