IVA Squirrel: Pros and Cons of an IVA

Pros and Cons of an IVA

Advantages of an IVA
-An IVA can be for an Individual, Sole Trader or Partner
-An IVA enables a Sole Trader or Partner to continue to trade and generate income towards repayment to creditors which would otherwise have a call upon the personal assets of the individual.
-No restrictions as regards personal credit although in practice can prove difficult to obtain. (See our credit repair guide for more information about credit files and how they work).
-The proposals are drawn up by you and are entirely flexible to accommodate personal circumstances.
-You do not not suffer the restrictions imposed by bankruptcy, such as not being able to act as a director of a limited company, not being allowed to work for the armed forces and other professions.

Creditors
-IVAs provide a better return to creditors than bankruptcy, the costs of administering an IVA are considerably lower than in bankruptcy, enabling a higher return to creditors.
-IVA’s operate as an insolvency procedure and creditors can as a consequence of this, still reclaim tax and VAT relief as a bad debt.

Disadvantages of an IVA
Where contributions from income are being made, IVA’s are generally expected to be for a period longer than that in bankruptcy, i.e 5 years as opposed to 3 years. The 5-year period is often required by creditors as a bargain for allowing the Debtor to avoid the consequences of bankruptcy.
If you fail to comply with the terms of the arrangement, your home and other assets are at risk if you have not been specifically excluded from the proposals.
If the IVA fails as a consequence of you not meeting your obligations under it, you will likely be made bankrupt.

IVA Advantages/Disadvantages for Consumers Table Breakdown

You only pay back a percentage of your debts. If you follow the agreed terms, you will be debt free in 5 years time.
Up to 75% of your debt may be written off.

This is a legally binding solution so no further interest or charges can be added to the debt. Enforced by law creditors can’t change their mind once they’ve agreed. You also get protection against possible court action.

Agreed monthly payment plans will remain fixed unless your income level dramatically increases.

It is a private agreement – only you, your advisor and your creditors need know about it. There is no publicity in the local papers, as is the case for bankruptcy.

You can continue to practise as a professional person (i.e. accountant, solicitor, doctor etc) or as a director of a company and can hold public office, as an IVA does not affect your professional status.

You can open a regular bank account, without an overdraft facility and have no/fewer credit restrictions than if you go bankrupt.

You can safeguard your property, as the proposals can be made flexible to suit personal circumstances.

If you have equity in your house, an endowment policy linked to your mortgage, or valuable assets you may be required to release them in to pay your creditors. (This is usually done near the end of the arrangement). However this is preferable to repossession and enables you to safeguard and retain your home.

Normally, an IVA cannot be used if your total debts are under ï¿½15,000.

You must be able to afford to make an offer of repayment to your creditors. Generally you need to be able to afford monthly payments of ï¿½200 or more

If you fail to keep up the payments set out in the agreement, your creditors WILL be able to take other action against you, which could result in bankruptcy, and your home could still be at risk if not specifically excluded from your IVA proposals.

In their bargain to allow you to avoid bankruptcy, IVAs are expected to be for a longer period than bankruptcy (ie 5 years). People who go bankrupt can be discharged from bankruptcy within between 1 and 3 years. So it takes longer to be debt-free. For more information see:
IVA pros and cons