The government introduced IVAs to protect the people who are deep in debt from becoming totally bankrupt. This was way back in 1986. On their side, creditors were also assured of payment because the debtor would pay as much as they could reasonably afford over 5 to 6 years. This means that there was no chance whatsoever of creditors ever losing their money to debtors.
The features of an IVA
The following are the features of an IVA:
- An IVA is a legally binding agreement
This means that the terms of an IVA cannot be broken at any one time. The creditors are not allowed to change their minds after entering the agreement. After signing an IVA agreement, you can be sure that the terms will stand until the debt is settled.
- The bond between you and your creditors will stop
An IVA agreement introduced a third party into the debt scenario; that is an insolvency practitioner. This means that as a debtor, you will no longer have to make your payments directly to your creditors. Instead, you will make monthly payments to the IP and he will, in turn, make the payments to the creditors on your behalf. This means that after the IVA comes into existence, you can now enjoy a life free from the endless phone calls and texts from the people and organizations that you owe.
- Only unsecured debts are covered
An IVA agreement only covers those debts which were not initially tied to any assets. A good example is a balance owed on your credit card.
- There is no claim on most your assets
Even for unsecured debts, creditors can sometimes decide to claim some of your assets for debt settlement. Well, this can be avoided using an IVA. Although you must lose some of your assets as part of the agreement, keeping your home is a guarantee. So, even when you are deep in debt, you will still have a roof over your head as long as you keep up with the payments.
- A large proportion of your debts will be written off
An IVA aims at paying the creditor as much as the debtor can afford. This means that some of the amount owed will have to be written off. This is an advantage for both the creditor and the debtor. The debtor will be relieved of some of the amount while the creditor is 100% assured of monthly payments and in any case, he/she will not be in a position to lose the full amount. Typically, creditors can expect a full repayment of 50-60% of the amount owed, which is much better than losing the full amount.
As you can see, an IVA agreement seems to be too good to be true, especially on the debtor’s side. In fact, that’s why some people do not embark on it because it almost seems like a scam. However, even if it takes 5 years, it is a government-approved, 100% sure way of ensuring that as a debtor, you will live a normal debt-free life again.