Debt is a huge problem all over the world, since the credit crunch the situation has spiralled out of control leaving many people in financial difficulty even close to bankruptcy. If bankruptcy feels like the only way out, there is another option available and that is with an individual voluntary agreement otherwise known as an IVA.

So what is an individual voluntary agreement? This is when a licensed insolvency practitioner supervises a legally binding agreement between the creditor and the borrower. The Insolvency practitioner will ask the debtor to provide them with monthly earnings and outgoings, then they will need to work out if the debtor can afford to pay the money back to the creditor.

An IVA will benefit the debtor and help to pay back their debt by reducing the amount that is owed to the creditor, however this usually means that the creditor will lose money owed to them. Although it is not a perfect solution for the creditor. at least the company will get some of their investment back. An IVA is a better alternative then bankruptcy and can take a lot of pressure off the debtor.

The borrower and the creditor will be talked through the agreement and once both parties have agreed the amount to be paid back, a contract will be put together for both of them to sign. When the contract is signed, it cannot be altered and the creditor is no longer able to pester the debtor for money. When the debt has been paid back in full, the borrower can find that up to 70% of their debt has been removed.

An Individual voluntary agreement does come with its restrictions, so they are not a viable solution for everybody. To qualify for an IVA you would need to have an unsecured debt of £15,000 minimum they will need proof that the debtor could not afford to pay this debt back. An IVA will normally be paid back within a term of 3 - 5 years. The Individual will then need to prove that he or she have been in long term employmentand that they can afford to to cover their monthly outgoings.

Final Thoughts

IVA's are great for individuals that are on the brink of bankruptcy, however IVA's should be looked into with caution, as it can still have a long term adverse effect on future finances not to mention the credit rating.