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An IVA, or an Individual Voluntary Arrangement is an agreement that is made between you and those you owe money to (your creditors) that determines how much you will repay each month and over what period of time (usually five years). An IVA is legally binding, meaning it is approved by the court and you and your creditors will have to stick to it. Not just anyone can set up an IVA though; this will have to be done by an appointed Insolvency Practitioner, who will then deal with the creditors during the entire IVA process.
Debt Consolidation, quite simply, is a way of refinancing your existing debts, so that you only make one payment per month, therefore making repayments easier and relieving some of your financial stress. Debt Consolidation can be used for various types of debt, including credit cards, personal loans and even store cards. However, it’s worth considering that deb consolidation may come with a price. For example, you may end up with a higher interest rate and may incur some early repayment penalties. You may also end up paying more back if the term of your loan is longer than that of your original debts.
More often than not, an IVA will not affect your job, or your ability to get another job in the future as it is highly uncommon for employers to carry out credit checks on potential employees. Also, an IVA could be looked on positively, as it is considered a sensible option and a great way to avoid possible bankruptcy. That being said, jobs that require fiscal responsibility may have stricter financial vetting, so if employers ask for permission to do a credit check, honesty is always the best policy.
An IVA will stay on your credit file for six years, from the date the IVA started. So, if the IVA was for the standard amount of five years, it will only be on your record for a further 12 months after the end date. At this point, you will essentially be starting your credit file from scratch, so it would be a mistake to assume that you will automatically be able to get credit again instantly. Avoiding getting credit again is also not advisable as you will need start repairing your credit file.
If after taking out an IVA you find yourself in financial difficulty again, it is imperative that you inform your Insolvency Practitioner immediately. As mentioned previously, an IVA is a legally binding agreement, so if you fail to make your repayments you may be subject to legal action from your creditors. If your financial problems are short term, you may be able to apply for a ‘payment holiday’ of up to six months, which will see your payments cease for this period. If your financial problems are likely to be long term, you may be able to have your repayments reduced, as long as the majority of your creditors approve.
You may be surprised to hear that an IVA will actually cover most forms of debt you can think of – as well as some you may not have even heard of. The most common form of debt is bank loans, which is of course covered by an IVA. Some other debt types that go towards an IVA are payday loans, overdrafts, store cards, credit cards, catalogue accounts and property shortfalls. In addition to these, you may find that an IVA also covers vehicle shortfalls, furniture credit, electrical goods credit and even personal guarantees.
If you find yourself taking out an IVA, you will be glad to hear that there are currently no laws in place that will force you to sell your home. However, you may be asked to release some of the equity within it, in order to repay your debts. This can be achieved by remortgaging your home during the five-year period that the IVA is in place.
A CCJ, or a County Court Judgement in full, is a court order that may be registered against you if you have failed to pay back money that you owe. CCJ’s are popular with creditors, as it is seen as an easy way for them to retrieve their money. If a CCJ is issued against you, you will be given an admission form to fill in, with several options. For example, you can choose to pay your debts in full, ask to pay in instalments or even ask to pay at a later date. In addition to this, you can also dispute the amount owed, or dispute the claim entirely if you feel you don’t owe anything.
Bankruptcy is commonly considered one of the most severe ways of getting yourself out of financial struggle, simply due to the ramifications that come along with it. However, it’s worth considering that like most forms of debt help, bankruptcy isn’t permanent. In fact, bankruptcy status usually lasts for just a year and can be used as a way of clearing all your debts and making a fresh financial start.
At the moment, there are more debt relief options available than ever – some more severe than others. The debt relief option suitable for yourself will depend entirely on your circumstances. For debts totaling less than £20,000, things such as Debt Relief Orders and Debt Management plans are a great way of clawing yourself out of financial difficulty. You may even look towards Debt Consolidation as a way of relieving some stress by rolling all your existing debts into a single, affordable monthly payment. More serious forms of debt relief are Insolvency (Be it voluntary or involuntary), and bankruptcy. These are considered more severe forms of debt relief as they may have a longer lasting effect on your financial future.