If you are contemplating debt reduction through an Individual Voluntary Arrangement (IVA) ) then it is worth reviewing exactly what is actually possible to achieve through an IVA rather than some of the sweeping advertising claims made about IVA's.
The IVA was not purposely designed to be used as a debt reduction mechanism but mainly as a means of restructuring consumer debts to avoid the situation further deteriorating, or bankruptcy - and its consequences - becoming inevitable.
One of the key issues most debtors face when confronted with overwhelming debt problems is the need to stop interest and financial penalties being continually applied and making the debt situation worse. An IVA will automatically stop additional interest and charges being applied.
One of the by products of an IVA is that a certain amount of outstanding debt will often be written off once the IVA is completed. By approving an IVA creditors are contractually acknowledging that a certain proportion of the debts owed will not ultimately be repaid.
Many IVA companies make advertising claims such as "Up to 75% of your debts written off" and some even claim "90% or 100% of the debt you cannot afford to repay". All these advertisements are variations upon a similar theme. It is indeed possible for a debtor only to pay back, to the creditors, 25% of the debt but the IVA fees also will need to be paid in addition, so the overall minimum repayment would be more like a third of the total debt being repaid. There are very exceptional IVA cases where creditors have accepted a 90% write off but by far the vast majority of IVA debt reduction is nearer 50-60% maximum, and the amount of debt written off is likely to reduce as creditors take more stringent action against what they deem to be frivolous IVA cases.
Those companies who offer an IVA debt reduction of "100% of what you cannot afford to repay" simply insult the intelligence – If you can afford to repay 70% of your debts through an IVA debt reduction programme, then the remaining 30% is obviously 100% of what you cannot afford to repay!! Such semantics only seek to annoy the creditors even further when we are trying to get an IVA approved and portray ourselves as a responsible industry.
For consumers with genuine debt problems looking to access the IVA legislation they usually want to repay as much debt as is reasonably practical over the IVA period. The debt reduction which is possible through an IVA takes account of this and finds an appropriate balance between creditor and debtor. Otherwise the IVA will not be approved.
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Total unsecured debt : £4000