Debt is proven to have a hugely detrimental effect on your health. One in six people have experienced debt related health problems. As well as affecting health, it also puts pressure and huge demands on an individual. There are proven links between poverty and health issues but equally there are indications of debt relief resulting in health improvement.

An Individual Voluntary Arrangement (or IVA) is a legally binding agreement between you and your creditors which has to be set up by a licensed professional called an Insolvency Practitioner. It helps those in debt make a formal proposal to settle up by making reduced payments towards the total amount in order to pay off a percentage of what is owed, until after around 5 years of this your debt is officially classed as settled. Monthly payments are based on your earnings minus your expenses over a period of 60 months. Once the final payment is made, any outstanding debt is legally written off. Anyone can consider an IVA to solve their debt concerns: you are normally required to have personal debts above £15,000 with 3 or more different creditors in order to be eligible for an IVA. Any unsecured debts can be included in an IVA, for example store/credit cards (which cannot be used for the duration of an IVA and will need to be cut up), personal/student loans, overdrafts etc. Secured debts such as vehicle HP or mortgage arrears, and other debts such as rent, council tax and fines have to be paid and cannot be included. Different insolvency practitioners have different ways of incorporating their fees into the arrangement so be aware and shop around. IVA proposals are tricky to put together and can sometimes be 15 pages long. It is important that the proposal is as accurate as possible and therefore it is extremely important that the IP is capable of  putting a quality one together.

To start the process off, your Insolvency Practitioner will ask you questions regarding your financial situation, and from the information you supply, a repayment amount will be agreed. It obviously depends on the size of your debts, but generally speaking you will need to be able to afford at least £200 per month. The formal proposal confirming this will then be sent to you. You need to sign and return it to your IP.  An application can then be made to the court for an interim order, preventing your creditors from taking further legal action against you. On rare occasions you may be asked to attend a creditors meeting but normally you are simply asked to be contactable by phone on the day. It is here that your creditors will be called upon to vote for or against the IVA. If 75% of your creditors are in favour of your IVA proposal it will be approved. If it is approved the other 25% of your creditors will be legally bound to the arrangement as well. It only requires one creditor (provided that creditor accounts for a sufficient amount of your debt) to vote 'for' it for the arrangement to be approved. Equally, it only requires one creditor to vote against it (provided they account for less than 25% of your total debt) to halt the IVA, in which case the meeting will be adjourned to a later date and any creditors who did not vote will be called upon to do so. If however, the dissenting creditor accounts for more than 25% of your total debt, the IVA will simply fail.

The IVA is distinct from standard debt management plans (in which organisations offer to reduce monthly loan and credit card payments to a single affordable amount) as it is legally binding, whereas debt management plans are little more than informal gentlemen's agreements, and can be broken at any time. These DMPs may reduce your repayments, but you still have to pay all of your debt back. Furthermore interest and late payment charges will still occur. An IVA can, depending on your circumstances, write off up to 65% of your debts. Any interest and debt charges will be frozen and creditors will be prohibited from demanding extra payments. During the period of your arrangement your financial situation will be reviewed regularly by your Insolvency Practitioner to see if there has been any change in your circumstances. They will function as a monitor for the duration of the agreement, ensuring all agreed terms and conditions are adhered to. Payments are paid to them and it is they who then ensure the payments are passed on to creditors accordingly. Any failure to make payments will surely result in the failure of the agreement, unless the creditors agree to an amendment to the agreement (for example should you lose your job creditors may agree to a short term payment holiday with your IP). If however, your circumstances change for the better, you may be asked to increase your monthly payments. Once the duration of the agreement has concluded the debtor will be debt free - under the terms of the agreement the outstanding balances are written off. Your credit rating will not be as badly damaged as it would be if you went bankrupt but you will be unable to borrow during the IVAs duration, and you may find it hard for anything up to a year after the conclusion of the IVA to get credit. It is important to note that if you have an endowment policy linked to your mortgage when you apply for an IVA then you may be expected to cash it in and pay the proceeds into the arrangement. Likewise, if your property has a reasonable amount of equity then it is likely that some of it will have to be released at sometime during the arrangement so it can be paid to creditors. 

If you would like more information on IVAs, DMPs, Bankruptcy, CCJs or how to deal with bailiffs you can speak to a debt advisor from the debt advise helpline on 0800 980 2800