Disadvantages of an IVA
An IVA is a Formal Agreement. Because the IVA is a formal agreement, the debtor will be bound by its terms, and if the debtor is unable to comply, the IVA will be failed. This could lead to the creditors making the debtor bankrupt
An IVA has Annual Reviews. Some people would not like the idea of having to submit their financial statements for an annual review each year. An IVA obliges the debtor to provide these details without fail. Any changes of financial circumstances will be noted and are likely to lead to a revised payment level.
An IVA has Rigid Payment Terms. An IVA is quite rigid in what it expects the debtor to pay into their IVA, and although there can be some flexibility in extreme circumstances; generally the IVA payment terms are quite rigid. Extreme circumstances may involve job loss or sickness where the possibility of a payment break from the IVA may be discussed with the supervisor of the IVA.
An IVA means no credit. Once the IVA begins, the debtor is not allowed to take out any credit agreements. It is considered a serious breach of the IVA if they do, and the IVA could be failed by the Insolvency Practitioner.
An IVA may involve equity release. If the debtor is a homeowner, full details of any property will need to be disclosed. Towards the end of the IVA, the debtor will be required to find out if any equity is releasable by remortgaging. Whilst safeguards are in place to ensure debtors are not put back into a position of financial hardship, equity may be used to pay back some of the remaining debt.
An IVA affects credit rating. The IVA will be noted on the credit file of the debtor, and will stay there until the IVA is completed. Only when the IVA is completed will the debtor be able to improve their credit rating.
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