An IVA is just one of a number of personal debt solutions available. There are alternative options you should consider before deciding if this type of agreement is right for you.
The debt solutions described below apply if you are living in England, Wales or Northern Ireland. If you live in Scotland you should consider the solutions available to you locally.
Debt Consolidation involves paying off multiple debts with a single loan. It can significantly reduce your outgoings.
Managed correctly the single loan payment you are left with will be lower than the total of all your current debt payments. It therefore becomes easier to pay the money you owe.
Consolidation is most commonly achieved with an unsecured bank loan. However if you are a home owner you could also use equity from your property by remortgaging or taking a secured loan.
Debt Consolidation should only be considered if the loan payment you are left with is affordable. If it is not you are likely to have to continue borrowing and your debt problem will become worse.
Debt Management Plan
A Debt Management Plan (DMP) is of the most common debt solutions. It is an agreement with your creditors to reduce the debt payments you make to an affordable amount.
Once the Plan is in place you should no longer have to continue borrowing more each month to meet your financial obligations.
It is an informal solution. This means that it is flexible. Once it has begun you can stop it at any time and change to a different solution if you wish.
It can take a long time to become debt free using a DMP. This is because you have to continue making payments until your debts are paid in full.
Bankruptcy and Debt Relief Order
If you go bankrupt all of your unsecured debts will be taken away from you. You only have to continue paying them if you can afford to do so and then only for 3 years.
Your property and any other expensive assets you own such as a car could be at risk. However this is not always the case. It largely depends on the value of the assets and the amount of equity in them.
One of the downsides of Bankruptcy is the upfront fee. However if you cannot afford this because your income is low you may qualify for a Debt Relief Order (DRO). This gives the same benefits as bankruptcy but costs much less to implement.
There are strict criteria you must meet before you qualify for a DRO. If your circumstances do not fit these you will need to consider Bankruptcy or an alternative solution.
An Administration Order is a legally binding agreement to reduce the payments you have to make towards your debts. It is approved by the Court so your creditors cannot chase you for money once it is in place.
You can only use this solution if your debt is less than £5,000 and a CCJ has already been issued against you. In addition you must be able to afford to make payments towards your debts each month.
An Administration Order can last until your debts and any Court Fees are paid in full. However the Court will normally state that it should last just 3 years. After this time any remaining debt is written off.
Since the introduction of the Debt Relief Order in 2009 Administration Orders have largely become redundant. It is rare that you would qualify for an Administration Order and not a DRO.