IVAs – Individual Voluntary Arrangements to give them their full name – are becoming an increasingly popular option for people looking to get themselves out of debt.
It’s no secret that as the cost of living continues to soar, more and more people are struggling to keep their finances in check. In fact, the number of people going financially insolvent in England and Wales actually jumped by 17% in the first quarter of this year.
Dig a little deeper, and the figures don’t read any better. A staggering 332 people a day were declared insolvent or bankrupt in England and Wales from January to March; the equivalent to one person every 4 minutes and 20 seconds. And the situation doesn’t look like improving anytime soon.
On the surface, taking out an IVA can seem like a safe and sensible way of getting to grips with unmanageable debt. A formal agreement between you and your creditors, it allows you to pay back your debts over a period of time, and can give you more control over your assets than bankruptcy. But there are risks attached.
5 IVA risks you need to be aware of
1. Costs. IVAs do not come cheap. They must be set up by a qualified person – who will then manage the case on your behalf. How much you pay this insolvency practitioner can vary considerably, but more often than not it will be in the thousands, and will be paid in instalments as part of your IVA payments. If you start IVA proceedings, and it doesn’t work out, you will most likely still have to pay the fees.
2. Credit rating. Your credit score is effectively your financial report card. The better your rating, the more likely it is that you’ll be approved for loans, credit etc. IVAs negatively impact credit ratings, and will usually remain on your file for five to six years from the date of approval.
3. Budgeting. If poor budgeting is the reason behind your financial troubles, then unless you find a way to form healthier spending habits, an IVA may only lead to further stress. IVAs are legally binding arrangements that you must comply with. And while monthly payments will be affordable, a tight budget will be required while the debt is repaid.
4. Privacy. Your IVA will be listed on the Individual Insolvency Service register. This register is public and can be accessed by anyone who wishes to look for it.
5. It may affect your mortgage application. Some mortgage lenders will refuse applicants who have taken out an IVA. Others will still consider you, but only once the IVA drops from your file.
Northern Community Bank is here to help
Decisions around finances and debt are often stressful and laced with doubt. As a Community Bank we encourage you to contact your community and try to agree a solution within your budget before going down an IVA route that could affect you for many years to come. If you need to talk about your account, then don’t hesitate to contact us. Our aim is to encourage responsible saving and ethical borrowing.
We do this by recognising your needs and formulating the best possible approach to suit your circumstances. No risk attached here.
