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What affect will an IVA have on the rest of your life?

An IVA is a proven successful solution for many people with certain types and levels of debt, however extra considerations should be made for how an IVA could affect important parts of your life.  How will an IVA affect your job, credit rating, business mortgage and partner? We’ve tried to cover all of these for you, below.

How will an IVA affect my job?

An Individual Voluntary Agreement (IVA) will likely not affect your job as there is no legislation that says an employer must know if you enter one. Furthermore, there are no public announcements in local media or financial publications. However, as with all Debt Relief Plans, there are some jobs that have strict rules about IVAs and therefore require employees to inform them if they enter one. It is therefore important that you check to see whether your employment contract requires you to tell them if you enter an IVA, as failure to do so may result in serious trouble.

How will an IVA affect my credit rating?

Whilst an IVA can be a flexible way to break free of debt, it can also be expensive and risky. One area that an IVA will negatively affect is your credit rating. An IVA will have a very negative affect on your credit rating simply because it shows lenders that you cannot manage your money and have needed help. In addition, with IVAs remaining on your financial record for six-years, your credit rating will remain poor for some time, making it very difficult for you to get loans during this period. For example, if you want a loan of more than £500, you must get written permission from the person in charge of your insolvency. This is because at the end of an IVA all outstanding debt is written off, meaning it is likely that your previous lenders lost money – thus making any new lenders very nervous about lending you money.

Is an IVA my best option?

IVAs are the best option for many as they are legally binding with your creditors and debt is usually cleared within 5-6 years. Assets can be kept and a payment structure is made that suits your situation. However an IVA can be very strict and needs to be kept to. If it fails then there is a risk of bankruptcy. Certain professions can also be affected by insolvency, so check your contract of employment before going forward with an IVA.  Whether you’re accepted onto an IVA or whether other options such as Debt Relief Orders (DRO) or Bankruptcy are better options, depends on certain criteria. Complete our quick online assessment to see which is best for you.

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How will an IVA affect my bank account?

If you enter an IVA, you may have to set up a new bank account to prevent your bank from automatically taking money from your account to pay any unpaid debts. This is called the ‘right to offset’ in which a bank is allowed to do this if your bank account is linked to the company you owe the debt too. As such, if your bank is linked to your debts, it is recommended that you switch your bank account to keep your income safe. Such links include a loan or credit card debt connected to your current account, as well as companies you owe money to being owned by your bank. However, if your bank account has no links to your debts, you will not be required to change bank accounts.

How will an IVA affect my mortgage?

If you enter an IVA, it is highly unlikely that you will have to sell your home. However, depending on the amount of equity in your home, you may have to re-mortgage your home six months before the end of your IVA so as to release equity that will then be paid into your IVA. This will always be assessed to make sure its affordable and you will not be expected to increase your mortgage to more than 85% of the value of your property. Furthermore, whilst you are subject to an IVA, it is highly unlikely that you will be able to enter a new mortgage, and you may even find it difficult to get approved for one for a number of years after the IVA has ended.

How will an IVA affect my partner?

If you decide to enter an IVA, it will almost certainly have some effect on your partner. The biggest consideration is whether you and your partner have agreed to pool your resources. If you have, this will affect the terms of any IVA you enter. Furthermore, even without a formal agreement, the court may decide from your lifestyle and expenditure that you do pool your resources and are therefore jointly responsible for the debt. Regardless of whether your partner/spouse and you pool your resources or not, entering an IVA will have an impact on your partner’s credit worthiness in regard to making it more difficult for them to lend money whilst the IVA is being conducted. However, it is possible to successfully complete an IVA without negatively affecting your partner – making it very important that you ensure your IVA is constructed well enough top give you the opportunity to overcome your financial problems.

How will an IVA affect my business?

One of the biggest benefits of an IVA is that your business can continue trading – this is something generally not offered with other debt solutions, such as bankruptcy. Furthermore, entering an IVA can actually benefit your business by enabling you to pay off your company’s debts and thereby helping you move back into profit. However, as you would expect, there are strict criteria that must be met, including:

  • Having the forecast turnover to pay the required amount to creditors every month
  • Submit full company accounts, including latest VAT returns, tax returns, and trading accounts
  • A credible long-term business plan that allows your creditors to see that profit is possible

There are however various obstacles that must be overcome, including the very real possibility that creditors will block credit lines, thereby making trading difficult in the future.

Want to know more? Find out about the cost of an IVA

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