Yes, an IVA will help you get out of debt – but with a few provisos. In the first instance you have to be eligible to enter into an Individual Voluntary Arrangement (IVA).
Not everybody is eligible. You can only enter into an IVA if you are insolvent. How do you know if you are insolvent? Many books have been written on this subject but perhaps the simplest way of determining whether you are insolvent is to ask yourself two questions:
- Am I unable to pay my debts as they fall due?
- Do my liabilities outweigh the value of my assets?
It is generally accepted that an individual is insolvent if he answers ‘yes’ to either of these questions. If he answers ‘yes’ to both questions, then there is little doubt but that he is insolvent.
The first question is called the ‘cash flow test’ and the second question is called the ‘balance sheet test’. They were originally devised as tests of the insolvency of a company but they are nowadays applied equally validly to individuals.
Assuming you are insolvent, you must ask yourself if an IVA is the best solution for your circumstances. It may be that Bankruptcy is a better solution. Alternatively, you may be able to negotiate reduced payments with your creditors so that over time you will be able to pay off your debts in full. You may be able to negotiate freezing of interest, penalties or other charges on your debts and combine this with reduced payments to your creditors, repaying your debts in full over time. These options are usually called Debt Management Plans and you may administer them yourself or engage a specialist Debt Management company to assist you.
To do an IVA, your total debts will probably exceed £12,000 and you probably need to have disposable income of £200 per month or more or be able to offer a lump sum to your creditors. These figures are not set in stone but they are the yardsticks used in most IVAs. An IVA offering monthly contributions of £200 or more will probably last for five years.
There are some disadvantages to entering an IVA, particularly the effect on your credit rating which will last for six years from when your IVA commences. However if you stick to your IVA agreement, you will be debt free at the end of the term, which is usually about five years.
To determine if you are insolvent and to obtain advice on all of your options, contact a reputable provider of insolvency services. Initial advice should be free.