What Is An Individual Voluntary Arrangement?
Otherwise known as an IVA, an individual voluntary arrangement is a formal agreement between you and your creditors whereby you agree to repay what you can afford over a period of five years.
An IVA must be setup through an insolvency practitioner, and so it will cost you money to setup.
All of your creditors get a chance to vote on the agreement, either to accept or reject the offer you make via your IP (insolvency practitioner), though if 75% of the creditors by value of debt accept the proposal the remaining creditors are obliged to accept the proposal.
You should consider an IVA when the thought of going bankrupt is too severe to contemplate, in addition to the detrimental effect a bankruptcy has on your credit rating.
If you have a job or are self employed, and therefore have an income, it makes sense to consider an IVA over five years, but beware that for those five years you will have very little money left over after the IVA payments for any other non-essential expenses.
Another caveat to an IVA is that if you default on the agreed payments during the five year repayment period, your creditors will petition to make you bankrupt. You really need to ensure that if you are employed that your job is safe and secure, or if you are self-employed, that your business is robust.
One main advantage of using an IVA rather than a bankruptcy to clear debt is that you may remain a company director during your IVA, and it will not affect your employment status, for professions such as Law, Accounting, Financial Services or Medicine, in the same detrimental way that a bankruptcy would.
My preference is to use an informal arrangement such as a debt management plan, with a view to make offers to settle your debts after 12-18 months. This will not have a drastic effect on your credit rating, and can see you reduce your monthly payments to a figure that you can afford, then if you can secure a lump sum from somewhere, you can use this to settle the debts and be debt free in just a year.