If you have debts that are no longer manageable, and are considering measures such as an IVA to avoid bankruptcy, then you probably need to think twice before considering getting further borrowing before your existing debts have been taken care of.
No credit during IVA period
IVAs are truly effective measure when it comes to getting unmanageable debt under control. If you do get an IVA, you will be unable to get further credit while the IVA period is elapsing. The period is decided on when you initially propose the IVA, and your Insolvency Practitioner will help you to work this out.
Settle existing debts
What you are essentially doing is offering your creditors an alternative payment schedule to the one you currently have. This will typically involve paying back only a portion of what you owe, but providing the IVA is successful your debts will effectively be settled at the end of it.
Free to seek credit after IVA
Once the IVA period has elapsed, and providing you managed to keep up with the payments throughout, you will then be able to seek credit again. The damage done to your credit rating is far less serious with an IVA than in bankruptcy, and so your credit prospects in the future will generally be encouraging. Just managing to keep to the IVA and get to the end of it is a good sign in terms of your debt management, and so creditors can see that you are able to handle debts once again.
Although it may seem restrictive that you cannot get credit while you have an IVA in place, in practice this makes it far more likely that the IVA will be a success. If your debts are currently unmanageable, then the best way for you to clear them is going to be if you do not gain any more borrowing until the current troublesome debts have been dealt with.
The purpose of an IVA is to keep you from becoming bankrupt while dealing with your borrowing in a manageable way, and so it would be counter-productive if you were able to get into even more debt while the IVA was proceeding. The payments that you make towards your IVA are supposed to be as much as you can manage while still enjoying a decent standard of living, and so you are unlikely to have sufficient funds left over for paying towards additional debts.
IVAs are not just a way to avoid bankruptcy and to deal with debts you can’t manage, they are also designed to help people to work towards a more stable financial future, by addressing their borrowing problems and learning to manage debt effectively.