Sometimes your debts can get the better of you and before you know it you have more debt than you can manage to pay off. Credit card interest rates make it impossible to get caught up once you fall behind on payments, because the amount you owe just continues to grow. The late fees that are added on keep you paying, but you get nowhere on your bill because the more you struggle the higher the interest and penalty charges become. Before you know it you are having a real financial crisis, which is exactly what happens to many thousands of UK residents each year. Your initial debts have turned into a financial burden and you simply do not have enough income to keep up with payments. This is exactly the situation that an individual voluntary arrangement is designed to help with.

The Individual Voluntary Arrangement (IVA)

If you live in the UK you have the option of applying for an individual voluntary arrangement in order to deal with debts that have grown beyond your control. An IVA is an option for people who have very serious debt problems and is not suitable for those who can afford to repay their debts in full. If you are thinking about bankruptcy to take care of your debts you should consider applying for an IVA first, or at least taking advice from a specialist company.

An individual voluntary arrangement is a legal binding agreement between you and your creditors, whereby you agree to pay them a proportion of what is actually owed and they agree to accept that amount. You are usually allowed five years to pay off the new settlement amount and at the end of that time the debts that are left unpaid get written off. Once the agreement is in place the creditors cannot change their minds, because it is a formal arrangement that both you and they have to stick to. It is important that you make your new payments as missing the payments can void the arrangement, giving the creditors power over your debts again and leaving you open to bankruptcy.

How an IVA works

You will need to shop around for a good debt management company to advise you and help you set up an individual voluntary arrangement. It is best to apply to a few of the best companies that you find. Most UK debt management companies will offer these solutions and they can walk you through the stages needed to get your finances under control. They will need to get information from you about your financial situation and they use this information to apply for an Interim Order through the courts. The creditors can no longer take any action against you once the Interim Order is in place.

A meeting will be held where the creditors will be allowed to vote on the IVA. If creditors for three quarters of the monetary value of the debts agree to the arrangement, then it becomes binding on the others as well. If one creditor has more than 25% of the monetary value of the debt and he is against the arrangement, then the IVA will not go ahead. Usually creditors will vote in favour of it even though it means they get a much smaller amount of what is owed them. This is because they could get even less if you become bankrupt.

Author's Bio: 

The author has written extensively on various issues related to help with debt and has created several websites and blogs to offer advice, including information about the UK’s National Debt Helpline.