The individual voluntary arrangement (IVA) is the final option for many investors in an attempt to avoid bankruptcy.  IVA is government-supported, formal arrangement between creditors and a debtor which provides a debt management solution for some borrowers.  In order for a borrower to be eligible for this special arrangement, 75 per cent of his creditors must agree to the terms outlined.  By law, all creditors must abide by the plan if this takes place.  The agreements are generally facilitated by debt help experts who work with both parties to put together the contract with agreeable terms.  

In many cases, creditors do not receive their full amount due from an IVA.  However, many recognise that it may be a more viable option than potentially receiving little to nothing if a borrower faces bankruptcy.  The benefits to creditors with the agreement include either a lump sum payment up-front, or consistent monthly payments over a period of typically three to five years.  This enables creditors to recoup some of the money they are owed.  

It can also save them on the costs and administration involved if they had to take legal steps to recover their money.   

Using this type of debt help solution is not an idea scenario for all people.  It does create a negative financing position for the debtor.  Lenders perceive the borrower as more risky afterwards.  However, it does create much greater possibilities in the future than a County Court Judgment (CCJ) or Declaration of Bankruptcy would.  More importantly, it offers a way out of the currently unmanageable debt scenario.  Some borrowers are so deeply in debt and have such troubling credit that no lender will work with them with a debt consolation loan or another form of direct debt help.  

There are several benefits to the IVA for the consumer, along with the ability to avoid more negative financial manouvres.  The arrangement is designed to provide a repayment plan that is manageable for the debtor based on his income.  Debt management, by definition, must be manageable in order for it to work.    

Perhaps the greatest benefit is that if the debtor fulfills the obligation of the agreement, the remainder of the debt is written off.  This sometimes leads to as much as 75 per cent of the original debt being avoided.  This is obviously a huge advantage to a debtor who can be responsible for the five years of the contract. It also allows them to wipe the slate clean and start afresh, without a CCJ or bankruptcy around their neck.   

The best way to avoid facing worst-case scenarios with debt is to avoid taking on too much debt to begin with.  For those that cannot make this decision in hindsight, debt advice and debt help can be especially useful.  Debt help assistance is needed to explore the best alternatives and potentially to compare IVA plan solutions.  Borrowers need to assess their situation and decide what their next step should be.  The reality of today’s debt and loan market is that debt management is accessible to those in financial distress.

George Gale is the author of this IVA and debt management article. 

This article does not represent ‘financial advice’ as each individual's personal requirements will be unique to their specific needs. If there is something in the article which you wish to rely on, please check those details with the person with whom you arrange financial services such as IVAs, loans or debt management plans.

The views in this article represent those of the author and not those of Netbasic Limited.