IVA Pros and Cons

Before you make a decision, you should weight up the pros and cons of taking out an IVA.

You can check if an IVA is the best choice for you, by using our free IVA calculator:

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IVA Pros (Advantages)

  1. A stable repayment plan
    From the very beginning you will know what you have to pay every month. No creditor will ring up and demand more money from you, or send you a letter unexpectedly putting up your interest rate to an exorbitant amount. Once an agreement has been made it is legally binding. The only changes to your monthly payment amount that may occur will be through your Insolvency Practitioner if your income goes up or down or you come into a cash windfall.
  2. Protection from creditors
    Under the terms of an IVA, your creditors can only deal with your Insolvency Practitioner. They are not allowed to contact you at all, and if they do you simply tell them to speak to your Insolvency Practitioner. An IVA gives you protection from your creditors, both from the harassment they can give by telephone and letter as well as through court action to recover what they are owed. They must stick to the terms of the IVA agreement they have signed with you.
  3. Affordable
    Because an IVA restructures your debts and is based on affordability, your monthly payment will be much less than you were paying previously. That’s because your Insolvency Practitioner made a deal with your creditors to accept a payment based on what was left over after all of your reasonable monthly living expenses have been paid. Prior to the IVA, you would probably have been scrimping on food, heating, bills, just about everything to try and meet that monthly debt repayment. Now it is the other way around – you get to pay for what you need and the creditors them get what is left over.
  4. Sustainable
    Because your monthly payment is based on what you can afford after your expenses, and you make a set number of payments, you stand a much better chance of seeing the IVA through to the end to become debt-free. All of your living expenses are taken care of, although you still have to keep a close eye on your budget, so you just have to count down the number of payments. Under the rules of the IVA you are not permitted to take out credit, so you will not be taking on any more debt. For once you are in a position of being able to pay what you need to pay and still have a good lifestyle, and that makes the IVA sustainable.
  5. Keep your home
    If you are a homeowner you will not be expected to give up your home. While your IVA may require some of the equity in it, if there is any, you will not be forced to sell. That means you and your family can stay in your home for the duration of the IVA term.

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IVA Cons (Disadvantages)

  1. You must qualify, and not everybody does
    An Insolvency Practitioner must be convinced that you meet the criteria to have an IVA, which includes owing over £5000 worth of unsecured debt to 2 or more creditors. You must be a resident of England, Wales or Northern Ireland with a regular income of £800 or above. You must have a surplus of £90 of more per month, to pay into your IVA. However, in addition to those criteria being met an Insolvency Practitioner must also make a positive nominees report that they believe you are a good choice for an IVA and can be relied upon to make the payments every month.
  2. Insolvency
    When you apply for an IVA you are declaring that you are insolvent and need an Insolvency Practitioner to take over the administration of your financial affairs. That’s fine as long as the creditors agree upon the IVA. If they do not however and your application fails, you may find your creditors move to take action against you as your have declared your insolvency. In reality, a good Insolvency Practitioner knows what will appeal to your creditors and will structure your IVA so it stands a good chance of success.

  3. Legally binding
    IVAs are legally binding and there can be serious consequences if you do not keep up the repayments. Just as creditors are bound to keep to their side of the agreement, you too have obligations to meet. If you fail to keep up with your payments, your IVA will fail and your creditors could move to take action against you to recover the full amount of what they are owed.
  4. Financial reviews
    On the one hand financial reviews ensure that the rising cost of living and falling salaries are taken into account every year so you do not end up pinching pennies again. However, if your salary is rising and you receive bonuses, that too will be taken into account and you payments possibly increased. Financial reviews will also highlight any windfalls, such as inheritances and lottery wins, and some of this money will be earmarked for creditors.
  5. Credit record
    An IVA will damage your credit rating for its duration, and for at least a year after it is complete. There is no way to avoid it. However, it is likely that your credit record has already been damaged prior to the IVA if you defaulted on any of your debt repayments.
  6. Unsecured debts
    Secured debts cannot be included in an IVA, only unsecured. So if you have mortgage arrears you must arrange to have these paid back each month along with your usual mortgage outside of an IVA.

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