Sometimes it does not matter how much planning a business does, they will end up filing for bankruptcy. However, there is an alternative to bankruptcy. People in the UK can form an IVA. The Office Of Fair Trading recognizes this as a formal way for people to avoid debt by working with secured creditors. Creditors in an IVA are usually very flexible, and the agreements could end up being based on third party payments, capital, personal income or all three, and this is because most creditors are known to work with a person's circumstances.
It does not matter what your plans are when you are looking into an IVA, it is very important to get professional advice on your own personal circumstances, as this will help you find out what will work the best for you. When it comes to working with creditors in an IVA, there are some advantages, as well as disadvantages.
The Length of Time
One of the biggest disadvantages of an income based IVA is that they can last for a very long time. In matter of fact they can last for up to seven years, but five years seems to be the average. In the lieu of equity, homeowners may find that their term will be extended up to a year. However, it's worth mentioning that bankruptcy ends up being discharged in as little as just over a year.
Your Credit Rating
Some may say that having an IVA appear on your credit report is better than bankruptcy appearing on it, because this shows that you were committed to paying back your debts. It is also worth noting that a debtor's credit rating will have already been damaged prior to them entering an IVA. Both a bankruptcy and an IVA will end up staying on your credit report for about six years, and this is from the time of starting an IVA or at the beginning of the bankruptcy.
When you are thinking about going through with an IVA, then there are two fees you will need to pay. They are separate fees, and if the funds are available, then they can both be paid as they are part of the business arrangement. The fees usually does not affect the payable amount, and it also reduces the overall dividend that creditors hope to receive as a result of the arrangement. It is essential that a debtor accept the fees, and then keep up with the fees on a regular basis. The first fee is called a nominee's fee, which will be determined based on the work performed leading up to the IVA being agreed upon. The second fee is called a supervisor's fee, which is paid according to the work that has been performed since the IVA was started. This particular fee is ongoing.
The Possibility Of Failure And How It Can Affect The Situation
People may want to avoid bankruptcy at all costs, but the fact of the matter is that an IVA can still end up being a failure, regardless of the type of security that the agreement seems to provide for you. If the IVA ends up failing as a result of you not being able to make the scheduled repayments in time, if there were new terms that were introduced, then bankruptcy may become your only and best option. In most cases, when an IVA has failed, a person is surprised to find out that not much of their debt has been paid off due to a good portion of payments going towards the supervisor and nominee fees. Also, there is a good chance that creditors will want to add further interest and other charges to your debts, and this can come into effect at the conclusion of the meeting with the creditors. Usually the fee is eight percent per annum, and this can be concerning for people who are not able to get out of debt. This is why it is a good idea to seek out professional help from experts before finalizing any agreement.