IVAs Negatives
Much of advertising of IVA's presents them as a too good to be true overnight solution to wipe the slate clean - which is of course not the case.
With the exception of bankruptcy, an IVA is the only legal way of writing off debt without paying it back. While this can be to enormous benefit to many people with debt problems, you should be aware of the conditions that apply and thing that can go wrong.
Below we explain some elements of an IVA you will not see advertised on daytime tv:-
Effect on credit record.
Most people entering an IVA already have some adverse credit history, but some people do not.
When entering into an IVA, you will be breaking the terms of your original credit agreements, resulting in defaults. Like all adverse information, this will remain on your credit record for 6 years.
If you successfully complete your IVA, you will be free from debt, but you will not have a clean credit record until about 1 year later.
Homeowners are normally required to re-mortgage.
In Bankruptcy, you loose control over all assets of worth, including your share of your home which may have to be sold from under you to pay towards your debts.
With an IVA you are making an offer to your creditors in an attempt to avoid potential bankruptcy. Part of that offer is to say, "let me keep my home, and I'll use it to release some equity in 3 or 4 years when it I can afford to make increased remortgage repayments".
You may still be made bankrupt.
If you fail to maintain the agreed IVA payments, your creditors may choose to start bankruptcy proceedings against you. Their offer to forgive you a portion of your debt will be null and void. This may leave you in a worse financial position than if you chose bankruptcy over an IVA in the first place.
Initial payments do not go to Your creditors.
IVAs are marketed as a no cost service for the debtor. This is true. You pay into the IVA only what you can afford based on you personal circumstances. Creditors bear the cost of the IVA by paying the IVA company from this money. You will not get a bill from the IVA company or an Insolvency Practioner.
What is not often made clear is the finer details of this arrangement. You pay into the IVA and the IVA company distributes funds to the creditors, but only after it has recovered its nomination fee, which if often £3,000.
(Our fees are less the the industry normal, £750+vat for debts under £15,000 and £1500+vat for debts over £15,000.)
If the IVA fails early on, as you've not been able to maintain repayments, you may find you have in effect just been paying the IVA company and not made an impression on your debts. This clearly leaves you in a worst situation than before.
This is one of many reasons why if you embark on an IVA, you should have the highest of confidence that you can stick with it for 60 months.
IVA providers cannot promise a favourable outcome.
No IVA provider can promise your IVA proposal will be successful. Ultimately, it is the decision of your creditors whether or not an IVA proposal is approved.
Contributions from future income and windfalls.
Entering into an IVA is essentially cutting a deal with your creditors saying this is what I can pay each month now, and I will pay whatever I can over the next 5 years.
If your circumstances don't change, the terms of the IVA do not change.
IVA's typically include a 'windfall' clause. Each year, your IVA is reviewed. If you come into some money, eg inheritance or improved salary, then this is taken into account and you could be required to make increased payments.
Not disclosing available funds is an offence. Typically you would be expected to pay half of any windfall into the IVA.
Your Debt Solution Options
Whatever course of action you decide upon to address unaffordable debt repayments, there will be risks and disadvantages with respect to other solutions.
For example, a secured consolidation loan will not impact your credit record, but you risk losing your home should you fall behind with payments. Normally you may pay back more than the original debt as the term of the loan is longer and total interest payments are more.
Whatever your circumstances, our aim is to offer advice that is in your best interests to enable you to look forward to a debt free future.
Call us today for free impartial advice specific to your situation.