The Best Alternative of Bankruptcy

By: Aisha Cristal
An Individual Voluntary Arrangement is the formal and legal binding debt solution designed to assist a person who is struggling with the debt mountain and unaffordable monthly outgoing. This agreement help them by restructuring the expected repayments to a new affordable monthly payment. By helping the debtor to keep up to date with the priority expenses, this agreement help him in a number of financial adverse condition. The concerned person can easily pay off liabilities like secured loans, mortgage or rent payment, without the fear of legal recovery action being taken against them by their unsecured creditors.

This plan is a formal arrangement and protects both parties from trying to make adjustments to the arrangement once it has been agreed. This also stops a debtor being harassed by their lenders. This is because one of the fundamental terms of this agreement stops lenders from contacting the borrower directly. Once the agreement comes into force, all correspondence is communicated through an insolvency practitioner. The insolvency practitioner generally impartial and is chosen by the borrowers to assist with the proposal. This neutral insolvency practitioner oversees or supervises the agreement for its full term.

An IVA remains normal conditions for a term of first 5 years. After that time the borrower is considered debt free, even if he has not repaid the loan amount completely .This agreement is especially beneficial when the borrower has a property and he needs to protect it from his unsecured lenders. This is because once the plan is agreed formally, and the borrower adheres to the norms of the agreement, the unsecured creditors are restricted to force the sale of the property. However, the lenders can settle for as much equity as can be released via a standard remortgage process.

The IVA is a cost effective debt solution when the debtor has a business and there is chance that the whole venture will be at risk should the debtor is declared bankrupt. Professional occupations such as accountants or lawyers, or indeed an occupation where high level of responsibility or trust is associated (Police Officer, people at armed services or a bank), this agreement is a real alternative to bankruptcy. This is generally a private arrangement between the debtor and the creditors and is not made public as it is in the case bankruptcy.

The flip side of the agreement is that someone who is in an Individual Voluntary Arrangement (IVA) is unable to release as much equity in a re-mortgage as someone who has a clean credit history. Normally a person in an Individual Voluntary Arrangement can raise only 45%-55% of the equity of his home at the time of availing secured loans. The equity value is raised at the end of the fourth year, and brings the Individual Voluntary Arrangement (IVA) to a early close. If the amount of equity available in the residential property of the borrower for release was insignificant, or the extra borrowings made the cost of the re-mortgage is unaffordable, then the lenders consider continuing with the agreement in the normal way until the end of the fifth year.

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