IVA's Explained
Print View - Published: Sat, 9 Jan 2010 at 10:44 PM
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One incurs serious debt if their income is not enough to pay for all the expenses. There are various reasons for lack or insufficient money such as divorce or job loss or even spending way beyond one's means. It is important that if one can no longer manage debt then it is best to seek debt advice from professionals who could help you contain the situation and bring the debt to a manageable degree. One can ask the advice of people from Citizens Advice Bureau (CAB) or hire the services of a Licensed Insolvency Practitioner.
If the debt is below £15,000, then one should consider going into debt management agreement. This is an agreement between the debtor and creditor. It is not legally binding but rather done voluntarily. The arrangement will help the debtor and creditor come up with the terms of payment and reduced amount of debt that the debtor is willing to pay and the creditor is willing to accept.
If the debt goes beyond £15,000 then a more formal agreement needs to be drawn between all the parties involved once an agreement has been reached. An Individual Voluntary Arrangement (IVA) is a contract between the debtor and the creditors delineating how the debts will be paid. The formal agreement is considered binding once it is approved by the creditors who comprised at least 75% of the total debt amount. Creditors often approved the IVA agreement if they are assured that they will get paid by at least 25% of the amount you owe them within 5 years.
A Licensed Insolvency Practitioner will negotiate the IVA terms in your behalf. In order to come up with the terms, a list on all your assets and income sources will be provided to the creditors. The Insolvency Practitioner then negotiate the acceptable settlement amount with the creditors.
The insolvency practitioner will supervise the arrangement and arranges payment to the creditors according to the terms. He will get his fees from the monthly payments. In an IVA, if the value of the house is bigger than the mortgage then the debtor can re-mortgage to be able to pay some of the debts. The usual term for IVA is 5 years.
If you cannot stick to the terms in IVA or the creditors do not want to accept the terms you are offering then you maybe required to file for bankruptcy. Seek professional debt advice before proceeding with bankruptcy option. Proceed with caution. Bankruptcy will take over your assets and you will have limited financial freedom for many years.
About the Author
David Salt writes for debt-free.org.uk and takes great pride in helping people to be debt free.
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