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One option for people struggling with unaffordable unsecured debts may be an IVA (Individual Voluntary Arrangement). This is a formal, legally binding debt solution designed to help you repay as much of your unsecured debt as possible, before the rest is written off.

This may sound like an ideal way out of debt, but there are downsides, and you will only be able to enter into an IVA if you can show your lenders that you really need it and that’s it the best way for you to tackle your debts. If you do qualify, though, it could be an excellent way to tackle your unsecured debts without having to go down the route of bankruptcy.

How an IVA could help

An IVA will reduce the amount you pay towards your unsecured debts each month, but you’ll still have to pay as much as you can. Your monthly payments will be based on what you can afford once your other essential costs, such as your utility bills and mortgage/rent payments, have been taken into consideration.

A typical IVA will involve making monthly payments for five years – although the repayment terms can vary. As long as you keep up with your payments you will be protected against action regarding your debts, meaning your lenders won’t be able to try and make you bankrupt.

Then, once your IVA comes to a successful conclusion, the rest of your unsecured debt will be written off.

How do I know if it’s the right option for me?

Even if you think you qualify, an IVA may not necessarily be your best option. You should always discuss your situation and your options with a debt adviser before you decide on any one approach to your debts. They’ll help you find the approach that best meets your needs.

In some cases, bankruptcy can be a better option than an IVA. It has some advantages, such as a shorter timespan (it’s usually over after a year), and it can be suitable for people who can’t commit to regular monthly payments.

Even if it turns out an IVA is right for you, remember that there will be an impact on your credit rating for six years. Also keep in mind that if you’re a homeowner, your IVA may require you to release equity from your home in the final year.

Further information on alternative solutions:
http://www.direct.gov.uk/en/MoneyTaxAndBenefits/ManagingDebt/PlanYourWayOutOfDebt/index.htm

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