Consumers in the UK who find they are increasingly unable to meet unsecured debt obligations might wish to consider arranging an IVA. If they are properly arranged and managed, Individual Voluntary Arrangements can give the consumer a manageable repayment schedule. This means the debts are repaid in affordable monthly instalments usually over five years. The arrangement needs to be arranged with professional support from a licensed Insolvency Practitioner (IP), who typically supervises the plan through to its end. Sadly, not all debt management companies have high professional standards when it comes to IVAs. This guide to some of the more common myths about IVAs circulating on the internet and in daily life might help those considering this debt solution. It also provides a’ reality check’ for each ‘myth’ and some actions that consumers can take to protect themselves.

Myth Number 1: It’s going to ‘wipe out debts’ by 95%

Reality Check: Providing you keep to the terms and conditions laid down by Individual Voluntary Arrangements, they do prevent the debts from incurring any new charges or interest. Should you successfully complete the agreement, all the debts it applied to will then be written off. It typically lasts for five or more years and you need to make regular repayments on time. It won’t typically write off as much as 95% of debts. It is a formal solution that simply creates a much more manageable state of affairs - consumers should therefore be very wary of any company offering inflated promises to ‘wipe out debts’.

Myth Number 2: They are a ‘new Government loophole’ scheme you can use to wipe out debt problems

Reality Check: They were first rolled out under the 1986 Insolvency Act and were simply designed to allow debt troubled consumers access to a workable solution to end unmanageable unsecured debts. It is recognised by the courts, used widely throughout the debt management industry and certainly isn’t any kind of ‘special legal loophole’.

Myth Number 3: It is a ‘new’, ‘smarter’ way to end every kind of problem debt

Reality Check: Again, it’s certainly not a new solution and it cannot be used in every case. There are also a small number of types of debt it cannot apply to. It’s most commonly used when a consumer owes a total of £15k to 3 or more creditors. For Scottish consumers, Individual Voluntary Arrangements are not used - anyone living in Scotland who is interested in this type of solution should seek independent advice about a Trust Deed instead (and any other legal debt options that may apply).

Myth Number 4: You will have to pay ‘separate fees’

Reality Check: The better debt management companies usually just include the fees in the monthly repayment instalments. Do check that those fees are at competitive rates.

Myth Number 5: IVAs are the single UK "alternative to bankruptcy"

Reality Check: For some circumstances, they can allow the consumer to indeed avoid bankruptcy - but they are not the only debt option recognised by the courts at all. And similarly, in some circumstances, they will not be appropriate at all.

Myth Number 6: You should just pay whatever your debt management company asks you to - it’s always better than bankruptcy

Reality Check: If your IVA is properly arranged it will allow you to retain enough money to cover all your reasonable everyday living expenses. Only then would any money be set for creditors, to be paid through your monthly repayment plan. Also, there are still other solutions, for example, to manage debts which do not match the IVA criteria. Finally, bankruptcy would still be a possibility should you monthly instalment plan amount have been set too high for you to keep to over time.

It’s a good idea to read as much independent information about Individual Voluntary Arrangements as possible before you take the next step and gain professional advice about your individual debt problems. The better debt management companies offer a financial assessment in complete confidence; and they will discuss IVAs in addition to any other legal debt options that might apply, including bankruptcy. The better companies won’t ask you to pay for their initial advice or try to pressurise you into committing to an IVA, especially by telling you it will somehow be able to ‘wipe out debts’.