No one looks forward to the broke days. They are gloomy, everyday feels like a Monday, and when things have really hit the fan, they taste like cardboard, and the taste never lets up. However, being in a state of near bankruptcy is never the end of the world. By entering into an individual voluntary arrangement (IVA) you will soon find yourself walking down that happy road of financial recovery.
Individual Voluntary Arrangements vs Protected Trust Deeds
In Scotland the equivalent of an individual voluntary arrangement is a protected trust deed, it is more or less a difference in name and hardly in character. The essence is the same, that is, they are both agreements entered into between debtor (yourself or a company) and a creditor with the objective of coming to a reasonable settlement of 'some' of your debts. This means you will definitely see a reduction in your monthly credit payments, as well as a somewhat miraculous shaving of the debts you owe. An IVA is therefore a source of binding obligations that have to be performed meticulously and in the form and manner agreed to.
The Implications For Your Credit Score
If you thought that entering into an IVA agreement would not leave an indelible imprint on your credit score then you were totally mistaken about the general implications this has for your credit score. Apart from simply placing your credit score on a red flag, an IVA also dents your credit history. Potential lenders will be able to know about your financial woes for a period of at least six years from the date of entering into this arrangement, or longer depending on how long you take to pay off your debts. So you might find that creditors will be slow to give you credit; however, this may actually be a blessing in disguise as any failure to obtain credit should be seen as missing death by a whisker. Believe it or not but lending institutions regard IVA applicants as high risk borrowers and as such charge higher interests rates than usual.
Different Strokes For Different Folks
The IVA is only available for people in the United Kingdom, particularly England, Wales and Northern Ireland.
A Matter of Public Record
This arrangement is said to be an alternative to bankruptcy, and quite rightly so because you are not in any way bound by the rules and guidelines as outlined in the Insolvency Act 1986, although to a small extent in part 1 of the Act. So once you have creditors totaling 75 percent of your debts on board and have come up with an amicable repayment plan that has been signed, the next step is to have you listed on the Individual Insolvency Register. This arrangement is a matter of public interest as the public has an interest in knowing your true state of financial affairs and to be protected from any repercussions that may flow directly from your inability to manage your financial affairs.
Pros and Cons
As they say, the proof is in the pudding. The only way to know whether something is good for you is to have a personal experience, a one-on-one so to speak. There are advantages to this, no doubt about that. Creditors actually get more out of it than they would normally have received from a bankrupt debtor and the process is faster and less stressful than filing for bankruptcy. However, this is just a scratch on the surface, it can do much more.
1. Interests rates are frozen;
2. Protection from legal action;
3. Steady reduction of debts whilst giving you time to breathe;
4. Avoid bankruptcy
The only real backdrops to this repayment arrangement are 1. You will find it harder to source credit in the future owing to the fact that it is highlighted on your credit history and affects your credit rating, and 2. Failure to respect the obligations outlined can result in you being in a worse position than you were in before, creditworthiness-wise.
Get In The Loop
Knowing individual voluntary arrangements and how they work is only half the job done, you now have to go out there and find yourself a professional insolvency practitioner --who is in most cases a lawyer-, file all your income and expenditure slips and proceed to actually sorting out the finances you now find in tatters.