You will often read articles extolling the virtues of the IVA, a debt solution for people living in the UK that enables the applicant a chance to reduce their repayments to their creditors within a structured repayment schedule, to a more affordable level. Often described as an alternative to bankruptcy the IVA offers a chance for creditors to recover a better dividend (or return) than they would stand to gain from taking legal action against the debtor.
But here are a few of the other areas of an IVA that are not so often talked about, the disadvantages, or downsides of an IVA.
An IVA will affect your ability to obtain further credit whilst it remains on your credit record. This means that you will find it almost impossible to get a loan, credit card or store card for 6 years. However, once the IVA falls off your credit record you will be able to start afresh and apply without any problems.
An IVA is a formal arrangement, which means that the applicant will be unable to make adjustments to the payment without having prior permission from the Insolvency Practitioner administering the IVA. This can mean budgeting difficulties if there are substantial changes to the income or expenditure of the applicant.
If the applicant has a change of financial fortune, such as benefiting from a lottery win, they will be legally obliged to pay off their IVA in full if there are sufficient funds available, including any insolvency practitioner fees.
An IVA is not something that can be cancelled at the drop of a hat, as the agreement is a legally binding contract. This means serious consideration needs to be taken before entering into an IVA, for if an IVA falls into default the creditors can force bankruptcy proceedings against the applicant.
And, finally, due to the official nature of the IVA process, the insolvency practitioner will insist on undertaking annual reviews of the applicant’s financial circumstances and where there is an improvement in the applicant’s ability to afford more money the payments will be raised accordingly.
Whilst each of these downsides will have varying degrees of importance to each IVA case, they do warrant consideration by everybody contemplating an IVA as their route to financial freedom.
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