As debt advisers, we come hear from clients all the time worried about the impacts of an Individual Voluntary Arrangement (IVA) on their life. Here are some of the most common misconceptions that we hear on a daily basis, and the true facts behind them!
I WILL LOSE MY HOME
One of the main reasons people choose to enter into an IVA rather than go bankrupt is because they want to protect their home which – both emotionally and in monetary terms – is often their most valuable asset.
Creditors recognise this fact and will not normally ask for the house to be sold. However, where possible, they will usually want to see some of the equity (if there is any) released by way of a re-mortgage or, if this is not possible, an additional 12 months’ payments at the end of the usual 60 month term.
The full implications of an IVA on the consumer’s home will be discussed with them prior to entering the IVA and, if they are not happy with what is proposed, they do not have to go ahead and can choose another debt relief option instead.
However, it is worth bearing in mind that an IVA may well be the best way of protecting the home. If creditors agree to it, then the creditors included in the IVA are unable to take any legal action such as an application for a charging order to secure their debt against the property, or bankruptcy. In addition, provision will be made for the client to repay their mortgage and secured loan in their income and expenditure.
This means that the consumer should never be in a position where they are unable to pay them because they have had to prioritise other debts.
MY EMPLOYERS WILL FIND OUT
The IVA will appear on The Individual Insolvency Register which is a government website. Though this is a public site which anyone can search, it is mainly used by credit reference agencies so that they can update their records.
Unless the employer conducts regular credit searches on their various members of staff, or the consumer tells them, it is very unlikely that they would find out.
Some professions prohibit their members from entering into an IVA by law (for example an Insolvency Practitioner) whilst some jobs will exclude them by contract. It is always worth the consumer checking their contract or with their HR department to see if an IVA will affect their employment.
Other professionals such as doctors, dentists, members of the armed forces and police officers may be obliged to tell their employers or professional bodies if they enter into an IVA, but this is unlikely to mean that they will lose their job.
If the consumer is applying for a job and knows that the prospective employer may do a credit search as part of the application process, they would be advised to tell them about the IVA.
I WILL HAVE TO SELL MY CAR
Many people have a car and indeed rely on it in order to get to work. It is still an asset however, and as such it will have to be valued and declared in the IVA proposals. There is a balancing act to be struck here though. On the one hand creditors may not take kindly to a consumer owning a valuable luxury car when they cannot afford to pay their debts, whilst on the other hand the car has to be fit for purpose. If, for example, the consumer travels a lot for work and has regular meetings with clients, they will have a greater need for a premium vehicle than someone who say works a couple of miles down the road and does not have to travel.
Generally where the car is valued at £5,000 or less it is normally fine. However, where the value is more than this, creditors will start to ask questions and, unless the vehicle can be justified, the consumer may be asked to downsize it.
Creditors will also look at the cost of any car finance in place and may in certain circumstances ask the consumer to find a cheaper vehicle as a condition to their acceptance of the IVA.
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