Sometimes, no matter how skillful the planning or execution, businesses will be met with unfortunate circumstances that will end in bankruptcy. However, bankruptcy does not have to be a final result. In the United Kingdom, people have the option to form an IVA, which are Individual voluntary arrangements. This alternative to bankruptcy is recognized by the office of fair trading as a formal way for individuals to avoid debt by collaborating with secured creditors. Typically, creditors in an IVA are known to be very flexible, and can work with an individual’s circumstances to the point where the agreements can be based on capital, third party payments, personal income, and any combination of the three.
No matter what your plans are for looking into an IVA, it is important to consult with a professional and receive advice on your personal situation to see what is an iva and how it works. As with any other plan of alleviation, there are advantages and disadvantages to working with creditors in an IVA.
Unfavourable Length of Time
One of the largest disadvantages come with an income based IVA is that they can often last for several years, with five being the average. Homeowners in particular can find that their term will be extended by as much as a year in lieu of an equity. Bankruptcies, on the other hand, are normally discharged after as little as one year, sometimes even less if the bankrupt meets the criteria for an early discharge.
Possible Negative Effects On Your Credit Rating
Although some may argue that an IVA can appear as a more positive statement to creditors than bankruptcy, since it shows an eager commitment to repaying your debt, it can be seen as having an similarly detrimental effect on your credit rating. More often than not, the debtor’s credit rating will already be in poor shape before the options are considered. However, both the bankruptcy and the IVA will stay on the credit report for up to six years from the beginning of the bankruptcy or IVA.
When considering undergoing an IVA, there are two separate fees that you will need to pay. Both of these fees can be paid if the funds are available, as they are a part of the business arrangement and are mentioned as a section of the monthly contributions of the IVA. These fees usually do not affect the overall payable amount, and instead reduce the overall dividend that the creditors hope to receive as a result of the IVA. As such, it is important for the client to accept the fees and keep up with them regularly. The first of the fees is known as the nominee’s fee, and it is charged depending on the work performed up until the IVA was agreed upon. The second type of fee is known as the supervisor’s fee, and it is paid according to the work that is performed since the start of the IVA. This type of fee is ongoing, and it is reclaimed from payments at the regular intervals.
The Possibility of Failure and How It Affects the Situation
Despite the security that this type of agreement can provide for people who want to avoid a bankruptcy at all costs, there is still a strong possibility of failure.If the IVA fails because the individual is unable to keep up with the regularly scheduled repayments, or if new terms are introduced between the creditors and the trustee that he or she is unable to agree to, then the possibility of bankruptcy becomes very real.
As a result of a significant portion of the IVA payments going towards the nominee and supervisor fees, people whose IVAs fail find that they did not pay off as much of their debt as they had hoped they would. As an additional concern, many creditors will also choose to add further interest and charges to the debts, which come into effect from the conclusion of the meeting with the creditors to the day that the failure occurs. The fee is typically eight percent per annum, and can be a large concern for those who are unable to get out of debt. Because of these risks, it is a good idea to consult with experts before finalizing your decision.