Why should I use an IVA?

Why should I use an IVA to deal with my money problems?

• You need make only one payment into the IVA each month, instead of having to pay funds to each debt, helping with budgeting. It is the responsibility of the Insolvency Practitioner to pay your creditors.
• An IVA will generate better returns for creditors than bankruptcy.
• Creditors can benefit from certain tax reliefs against ‘bad debts’ in respect of IVAs.
• Creditors are legally bound by the terms of the IVA, even if some vote against it, as long as creditors amounting to 75% of the total debt vote to accept.
• Once an IVA is approved at the Creditors’ Meeting, even those who voted against it, or those who did not vote at all, are prohibited from contacting you and making further demands.
• Interest and charges are frozen on all the unsecured debts in the IVA.
• Creditors can no longer contact you, or make any further efforts to recover their debt.
• A proportion of the unsecured debts can be written off as part of the IVA agreement, giving certainty at the end of the IVA that there is no further unsecured debt to pay off. So, after completing the IVA, you will be debt free – at least as far as your unsecured debts are concerned.
• Unlike bankruptcy, an IVA allows you to keep your assets such as your house.

This sounds a lot like a Debt Management Plan, from what I hear

It is useful to understand the difference between an IVA and a debt management plan as there are some real distinctions which are not commonly recognised.

• An IVA is a legally binding contract, established through the Insolvency Act 1986, and takes into account your whole financial circumstances, including your assets and liabilities. A Debt Management Plan is an informal arrangement which is not legally binding, and therefore neither debtor nor their creditors are legally bound by the terms of a Debt Management Plan.
• An IVA generally lasts around 60 months (5 years) and is then complete, with any remaining debt written off as part of the arrangement terms. A Debt Management Plan has no formal end date, and can in some circumstances continue for considerably more than 5 years.
• A Debt Management Plan does not ensure that any debt is written off; essentially you continue to pay until all has been repaid.
• A Debt Management Plan is essentially based upon your cash position, with the monthly payment based upon what can be afforded from your income; it makes no demands upon your investments, house equity or any other assets you may have.
• Whilst an IVA guarantees the freezing or interest and other charges, a Debt Management Plan cannot provide such a guarantee. Some creditors will still agree to freeze such charges for a temporary period, but this period will depend upon the strength of the relationship between the debt management provider and the creditors. At National Money we see acceptance of payment offers in 97% of cases but this cannot be said of all debt management providers.
• Whilst an IVA is pretty rigid in terms of what can and cannot be done during its life, a Debt Management Plan offers flexibility due to its informal nature which allows for reductions in payments on occasions of crisis or indeed immediate increases where these are possible.
• There can be advantages to creditors of dealing with debts under a Debt Management Plan, as they can continue to charge interest, continue to class the debt as ‘live’ on their balance sheets, and take enforcement action if they consider this appropriate. Debts under an IVA will be classed as ‘bad’ in terms of balance sheet recording and this can affect the lender’s capital ratios set by the Bank of England etc, though could also give them some tax benefits.