Neil Morrissey Takes Out An IVA (Individual Voluntary Arrangement)
The world of showbiz is littered with stories of the once successful hitting the buffers, so itís not a huge shock to see actor Neil Morrissey now in serious financial bother.
What is surprising is his choice to try and avoid bankruptcy in an attempt to repay all his creditors. The former Men Behaving Badly and Bob the Builder star has admitted to debts of around £2.5 million following the collapse of his luxury chain of hotels, but in choosing an Individual Voluntary Arrangement (IVA) rather than bankruptcy heís hoping to pay back all the money he owes in three years.
Itís not just celebrities who face financial highs and lows, though, and many face the difficult decision as to whether to opt for bankruptcy, IVAs, or alternative debt management plans.
MoneyExpert.com considers the options.
Individual Voluntary Arrangment (IVA)
An IVA is one step from bankruptcy and should only be considered if your debts are truly overwhelming you. Bankruptcy is the last resort and IVAs are the final way in which you can avoid going bust.
IVAs are a joint agreement between a person in debt and his/her creditors. Both parties agree to repay a percentage of the debt for a period of time ñ often five years. The whole process is overseen by an nsolvency practitioner.
Often once the IVA comes to an end any remaining debts are written off. You will have to go to court to see if your petition will be accepted instead of bankruptcy. Also it is worth bearing in mind that you will be restricted in future by taking out an IVA. Your credit rating is severely impaired and once it has expired you will still find it difficult to attain new credit ñ particularly mortgages.
A more popular option?
Despite the implications of agreeing to an IVA, they are rapidly increasing in number. In the first three months of 2009 the number of IVAs in the UK reached 10,713, an 11% increase on the first quarter of 2008.
Banks and other lenders are now reducing their minimum payment thresholds ñ you previously had to agree to repay a minimum of £200 a month ñ meaning that IVAs are becoming viable for a growing number of people.
Debt Management Plans
Debt management plans work as a slightly less formal arrangement than an IVA and wonít have such serious implications on your credit history.
If youíre unable to meet your repayments on credit cards, loans or your mortgage ñ or maybe even a combination of the three ñ and youíre finding it impossible to refinance your debts, you can still find a way to repay your debts with one simple monthly payment using a debt management plan.
Debt management plans are designed to help people repay their debts. They aim to get your creditors to agree to reduced repayments to a level that you can afford and will deal with lenders on your behalf. Youíll get a full assessment of your financial situation and will agree a plan that is realistic and that you can afford.
In the end there will be one monthly payment, which will be distributed to your creditors ñ many debt management services will charge a fee for negotiating this and this will be added to your repayments.
Bankruptcy is the last resort if you really cannot see any other way to escape constant demands for payment of debts.
There are often other options available (see above) so make sure you think carefully before biting the bullet. Bankruptcy comes with severe constraints, including:
Find out more about Debt Mangement Plans, Individual Voluntary Arrangment (IVA’s) & Debt Settlement Debt Solutions.