This is a guest post by One Advice at oneadvice.co.uk. One Advice are of the longest established debt solutions practices in the UK. They offer a full range of financial solutions all under one roof, so they can offer ethical debt advice allowing clients to find a financial management plan which best suits their needs.

IVA Debt Settlement

For some individuals who are struggling with debt issues, offering a debt settlement agreement to their unsecured creditors can be a way out of debt, but it is not necessarily available for all.

The concept of debt settlement in the UK is fairly new. The idea of debt settlement in the UK means that a consumer pays less of the debt than they actually owe and (besides bankruptcy), the only way to do so is through an Individual Voluntary Arrangement (IVA).

How Does an IVA Settle my Debt?

An IVA is a debt settlement plan which is designed to ensure that an individual only pays the amount of debt that they can realistically afford over an average period of 60 months. It was introduced as a bankruptcy alternative and many of the negative consequences can be avoided.

For an IVA to begin, it must be improved by the client’s unsecured creditors. 75% (in terms of debt value) must agree to the IVA for it to go ahead. An IVA is generally only suitable for those with high levels of unsecured debt, £15,000 or more, and requires a qualified insolvency practitioner to arrange the IVA.

IVAs means that the outstanding balances of unsecured are joined together into a reduced monthly payment, and the repayments are calculated to be affordable and are based on the individual’s income and expenditure.

An IVA lasts for a typical period of 5 years and is legally binding between the individual and their unsecured creditors. As it is legally binding, it offers the client additional benefits as the creditors cannot change their repayment demands or the terms of the original agreement. It also means that it is legally binding to the debtor, so the set payments must be made or else they could face their creditors declaring them bankrupt.

On completion of the IVA, any remaining debt is written off as part of the IVA agreement.

Debt Settlement Alternatives

The idea of repaying debt less than you owe is not always as simple under UK legislation. Therefore there are a number of debt settlement alternatives which may be more appropriate:

Trust Deeds: IVAs are only suitable for residents of England, Wales and Northern Ireland. Those who live in Scotland have the IVA equivalent of a Trust Deed. This is a long term debt settlement alternative where a proportion of the debt is repaid over a fixed period, often three years.

Debt Management Plan: This is an informal agreement which is designed at consolidating debts together so an individual can make a reduced monthly payment which will cover all of their debt. A Debt Management Plan can flexibly change to suit your circumstances, if needs be. There is no amount of debt relief and the total amount of debt will have to be repaid in full.

IVA, Trust Deeds and Debt Management Plans will ultimately achieve a form of debt settlement, although the ability to repay less than you owe is dependent on the individual debt solution and the percentage of debt write off is dependent on your own unique circumstances.

This entry was posted on Tuesday, September 8th, 2009 at 12:13 and is filed under Debt Reduction FAQ. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.