IVA Disadvantages

Much of the advertising concerning IVA's is misleading. Too often, claims made are untypical of the majority of cases and many of the less appealing aspects of an IVA are not mentioned.

An IVA will not make your debts go away over night.
Please be aware that an IVA is intended to be an alternative to those threatened by bankruptcy. It is not a legal loop-hole allowing anyone to get away with non-repayment of debts. Creditors will only accept the proposal believing it to be in their best interests.

Below we explain some the disadvantages of an IVA:-

Effect on credit record.

When entering into an IVA, you will be breaking the terms of credit agreements, resulting in defaults. Like all adverse information, this will remain on your credit record for 6 years. If you successfully complete your IVA, you will be free from debt, but you will not have a clean credit record until about 1 year later.

This will effect (but not disable,) your ability to get credit once the IVA is completed.

Homeowners may be required to re-mortgage.

In the 3rd or 4th year of the IVA, if you own property in which you have significant equity, normally, you will be expected to re-mortgage to raise money to pay into the IVA.

You may still be made bankrupt.

If you fail to maintain the agreed IVA payments, your creditors may choose to start bankruptcy proceedings against you. This may leave you in a worse financial position than if you chose bankruptcy over an IVA in the first place.

IVA providers cannot promise a favourable outcome.

No IVA company can promise your IVA proposal will be successful. Ultimately, it is the decision of your creditors whether or not an IVA proposal is approved.

Contributions from future income and windfalls.

Entering into an IVA is essentially cutting a deal with your creditors saying this is what I can pay each month now, and I will pay whatever I can over the next 5 years.

If your circumstances don't change, the terms of the IVA do not change.

IVA's typically include a 'windfall' clause. Each year, your IVA is reviewed. If you come into some money, eg inheritance or improved salary, then this is taken into account and you could be required to make increased payments.

Not disclosing available funds is an offence. Typically you would be expected to pay half of any windfall into the IVA. Please call us for advice as to what is considered to be a windfall.

For more information about IVAs, read our full brief on "Facts", "Benefits" and issues you need to "Be Aware" of before you enter into an IVA.

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