Debt Management or IVA ?
A summary of the main differences between an IVA and a Debt Management programme.
Many people have the option of considering an IVA or Debt Management to solve their debt problems. Here we explain the main differences.
Debt Management
- An informal agreement which is not legally binding.
- Requires you to have at least 2 creditors and debts of £2000+
- Requires you to be able to afford £100 minimum per month towards your debts.
- Payments are made for as long as it takes to repay debts in full.
- Flexible, you can change your payments or cancel the agreement as your circumstances or ability to make payments change.
An IVA
- A formal agreement which is legally binding.
- Requires you to have at least 3 creditors and normally debts of £10000+.
- Requires you to be able to afford £200 minimum per month towards your debts.
- Payments are made normally for 60 months, with up to 70% of debt written off.
- Not as flexible. Once the agreement is in place you can't change your mind.
You Assets in Debt Management & an IVA
With Debt Management, your personal wealth is not a factor. You can be worth more than your unsecured debts. In other words, you do not need to be insolvent. You may have lots of equity in your property or even own it outright, it does not matter. What matters is that having taken into account your essential living expenses, you cannot afford to make your unsecured credit repayments each month.
IVA's are for people who are insolvent which means, your debts outweigh your assets and you can't repay your debts at the rate you're contractually required.
IVA's are intended to be an alternative to bankruptcy, such that creditors get back no less of their money than if you were made bankrupt. In bankruptcy, a court appointed insolvency expert, called an Official Receiver, takes over of all your assets of worth and sells them to repay your creditors. You can and will loose your home if its sale is required to repay your debts.
An IVA is a less harsh version of this. The idea being is that so to avoid bankruptcy, you make an offer to pay back as much as they can afford, normally over 5 years. If you have significant equity in your property, you will normally be required to remortgage to raise some money to pay into the IVA at some point during these 5 years.
Exactly how your current assets impact an IVA is very much down to personal circumstances. You would need to speak to us for accurate advice specific to your situation.
When Debt Management can be more suitable:-
If your debts and income levels appear to qualify you for an IVA, the following circumstances may make you decide upon debt management instead.
- You can afford to payback all your debts within 5 years, with or without a modest remortgage. Therefore you do not need to declare yourself insolvent.
- You do not want to turn your unsecured debt into a secured debt be releasing equity in your property or remortgaging. This increases the potential of repossession.
- Your income is expected to rise and you intend paying off the bulk of your debts when that happens. For now of most importance is a short term measure to reduce monthly credit repayments.
- You have not enjoyed continuous employment in recent times or are self employed without yet filing proper accounts. Your creditors will not vote in favour of an IVA without confidence of sustainable income levels. You could be considered for an IVA when you have proven more stability in your income.
- You may come into some money, for example inheritance, while on an IVA. You would normally be expected to pay 50% of any extra income into your IVA. There are ways to get around this, for example changing a will or getting the money put into trust.
For advice as to your suitability for an IVA or Debt Management Plan, please call us on 0800 107 8449.