IVA Pros and Cons

Embarking on an IVA can be an exciting but equally daunting experience. You’re about to take on something that will help you become debt-free, but it comes with all sorts of considerations that can be a little scary to think about. These pros and cons need to weighed up in terms of the overall benefit you are likely to receive from an IVA. The following is just a few of the bigger pros and cons to think about prior to seeking in-depth financial advice on your situation.


You only pay creditors what you can afford

Unlike many other debt management plans, with an IVA you only pay what you can afford after all your living expenses have been taken into account. This is because an IVA is a legally binding agreement that supersedes any previous payment agreement you have with your creditors.

No more hassle from creditors

Under an IVA, your creditors must only contact your Insolvency Practitioner with queries, never you, and to do otherwise is against the law. That means the phone will stop ringing with creditor demands and you need no longer fear that your lenders could visit your home or take action against you.

All interest and charges are frozen

To ensure you can pay off a good proportion of your debt, any interest, charges and penalties will be frozen at the point where your IVA is agreed. No longer will your debt continue to spiral uncontrollably. Debt-free in 60 months

The standard term for an IVA is 60 months, and every month you make a single payment to your IP who distributes it to your creditors. This means that you know after 60 months you will be debt-free and ready to move on with your life.

Get some of the debt written off

Even though you may not have paid off all of your debt, once you have made 60 monthly payments you know the rest of your debt will be written off. You won’t have to go on paying your debts month on month without an end in sight like many other debt payment plans.

You can take payment holidays

If something happens in your life unexpectedly and you cannot keep up with your payments, your IP can arrange at their discretion for you to take a payment break for a few months. The months you have missed can be added on to the end of the IVA.


Your credit rating will be damaged

Unfortunately your credit rating will show that you are in an IVA for its duration and for some time after it has been completed. This is unavoidable, as all financial transactions involving credit and creditors are detailed on your credit record. However, there are ways to improve your credit rating quickly once your IVA is complete.

You must part with some of your assets

Part of your agreement with your creditors is that any assets over and above that considered necessary for day-to-day living will be sold and use to repay some of your debt. This does not include your home, although your IP may consider whether some of its equity can be released.

Only unsecured debts are covered

IVAs can only service unsecured debts, which includes balances on credit cards, store cards and loans, overdrafts, and utilities arrears. Anything secured against a possession cannot be, and this includes mortgage arrears, phone contracts, HP agreements and leased cars. If you do not keep up the payments on them you can either give them back to the retail owner or let them be repossessed.

You may have to rethink your retirement plans

An IVA will set back any pension plan you may have. Whether you have a personal pension or a works pension, an IP will ask you to stop paying into it for the duration of the IVA as it is a luxury you simply can’t afford.

You may have to release equity in your home

If you have a substantial amount of equity in your home your IP will expect you to release some of it to pay creditors. This could be at the beginning of the IVA or, if you do not have enough equity or are in negative equity, at the end of the IVA as the property should have appreciated in value over the 60 months.

You must never miss a payment without prior agreement

IVAs are not like unsecured debts, where if you miss a payment you may get a late payment penalty and have to clear the arrears. If you miss a payment, your creditors will deem your IVA to have failed as you have not kept to the terms of the agreement with them, and they can take action against you and move to make you bankrupt.