Individual Voluntary Arrangements (IVAs): A Tool for Consumers in Debt

As I have stated previously, in the current economic climate, businesses that help free people from debt are going to be doing well for years to come.

Part of the problem in much of Western society, and particularly in the United Kingdom and the United States, is that consumers have been spending more than they have been earning, and digging themselves into a hole of debt. In both countries, spending beyond one's means can often result in bankruptcy.

In the United Kingdom, there is an alternative solution, the IVA. Individual Voluntary Arrangements with creditors are similar to Chapter 11 Bankruptcies in the US, and are looked at with more favor by creditors, though they still affect a person's credit rating. They essentially entail the consumer paying off a portion of their debts, with the creditors writing off the rest. They are private arrangements made through insolvency practitioners and a person's creditors, so that a person does not have to file for bankruptcy. Unlike Chapter 11 Bankruptcy in the US, IVAs are geared towards individuals rather than businesses.

An individual thinking about an IVA as an alternative to bankruptcy must have a debt of at least £15,000 and must be regularly employed, so that they can make agreed upon payments on the debt. As with everything, there are pros and cons.

The benefits from IVAs are that individuals can protect their positions of employment. Anyone who has had financial issues inevitably would have problems keeping or getting a job that requires handling money. In the UK, people with bankruptcies in their past cannot work in the civil service, police, or the military. Consumers are also protected from further action by their creditors and their property is safeguarded. Payments usually last only five years, individuals have control of their finances, can open bank accounts, and they only pay a set amount equal to an agreed upon payment that they can afford.

The disadvantages are that it cannot be used by someone with less than £15,000 in debt. Also, if the terms of the agreement are not met, creditors can take further action, including being forced into bankruptcy. Though a person gets to keep their house, towards the end of the debt period, equity must be taken out of it in the form of a new mortgage that is released to their creditors. IVAs do go on a person's credit history for one year, though in most cases they are seen as preferable to bankruptcies. Sometimes too, in about one out of twenty cases, the period of debt repayment is extended to six years. During the period of repayment, a person is also not able to borrow.

Debt must be dealt with before anyone can create or build wealth, and IVAs offer many consumers in the UK who are in financial trouble an opportunity to do just that.