Published in Debt Advice Features on Wednesday, January 24 2007

Many people enter into an Individual Voluntary Arrangement or an IVA every year, the amount of people entering into an IVA increases year in, year out, there are many companies who claim they can write off 75% of your debt and you would be guaranteed to be debt free in 5 years. These statements are correct on the basis of how the IVA was introduced and works, these are just some of the benefits of entering into and Individual Voluntary Arrangement, but is the IVA always the best option? Are you getting the right advice?

The IVA is an excellent debt solution for people who can afford to pay back their debt quite comfortably over the term of the IVA, an IVA does guarantee that you should be debt free within 5 years and that some of your debt is written off, but there is doubt that some companies over advise an IVA when it is not the best way forward for the individual.

The process of an IVA is very complicated in as much that it has to be agreed by many people and should be assessed all the way through to the IVA proposal being sent to creditors.

My view is that there are companies who advise an IVA when clearly it is not the best option for the individual.

What I mean by that is some companies will work off what a persons current circumstances are and not take into account any change in circumstances that will definitely happen within the 5 years.

What that means is that the IVA may be initially accepted by the creditors, but a couple of years down the line the IVA could fail, which would mean to the IVA was not the best option and could lead the person into bankruptcy.

In addition to this my view is that some companies will advise an IVA is the best option and take around 6 months to take it to the meeting of creditors, meaning that the individual may have made around 6 payments into the IVA, then when it gets to the creditors they would reject the IVA, and the company knew that the IVA would not be accepted by the creditors anyway, this means that although money paid into the IVA if taken further could be refunded, but generally the company will keep the money, putting the person in a worse position than when they started.

All this in mind, if somebody advises that an IVA is the best option for you but your circumstances are definitely due to change, e.g., (Separation, Divorce, Redundancy, Maternity, Hospitalisation, anything that would have a dramatic impact on your financial position) then the IVA is probably not the best route to take and you should seek advice elsewhere, other alternatives could be to look at a short term debt management plan, until your financial position gets better or until there is no uncertainty to your future.

The main thing is that an IVA has to be administered and monitored by a licensed Insolvency Practitioner (IP) and if they constantly propose Individual Voluntary Arrangements to creditors, and the IVA gets rejected or they fail then the IP runs the risk of getting their license revoked, which means they can no longer practice.

Although this article is focusing on the negatives, and there is quite a lot of bad press about Individual Voluntary Arrangements, you must always consider this and be aware that although there are ғrogue companies and always will be regardless of what market they are in.

An IVA has to be agreed by the creditors, the Insolvency Practitioner will have some sort of relationship with the creditors so if an IVA is advised to be the best route, it probably is, it is VERY difficult to propose an IVA to the creditors if it is not the best option, as they will reject it which means it is very difficult to enter into an IVA if it not the best route.

The best way to know that you are getting the right advice is to seek advice from a debt advice organisation who operate a best adviceӔ ethos, which means they are impartial and do not actively promote one solution over another, this way you know that regardless of your position you will be getting the best possible debt advice that reflects your individual financial position.