The unfortunate truth is that many people go through financially difficult times at some point during their lives and can often end up with debt that they are unable to pay. In some cases, an Individual Voluntary Arrangement (IVA) is the best debt solution available to them that can help them take control of their finances.
Whilst most credit providers are under the impression that IVAs don’t benefit them in any way, we’re here to tell you that this is not the case – it’s actually the opposite. Read on to find out why.
What is an IVA?
An IVA is a legally binding agreement between an individual and their creditors. This type of debt solution allows a person to only repay a percentage of their unsecured debt to their creditors in affordable monthly payments, usually over a period of five or six years. Once an IVA is approved by creditors, interest charges are frozen and no further action can be taken by the creditors in relation to the person’s debt. Once an IVA is completed, the remaining unsecured debt is written off.
What happens when a person doesn’t pay their debt?
In some cases, when a person doesn’t pay their debt, credit providers will consider these debts ‘uncollectible’, and will pass them over to a debt collection agency or a bailiff if they are struggling to collect the debt themselves.
Technically, this does not mean that a debt is written off, it simply means that the debt has been sold to a third party debt collection agency. This party will then try to recover as much money as they can from the debtor to make a profit on the debt which they purchased from the credit provider. When credit providers go this route, they tend to lose a lot of money as the debt is generally sold for a fraction of what its value in an attempt to recover a portion of the money and clear the debt off their books.
So… How does an IVA benefit a credit provider?
Despite a portion of debt being written off at the end of the IVA, there are still benefits to a credit provider.
As mentioned above, credit providers often sell debt that is considered ‘uncollectible’ to debt collection agencies at a fraction of what it’s worth. When credit providers do this, they tend to lose a large portion of the money that is owed to them. Even though the debt is sold to the highest bidder, the rates paid for delinquent debt is still pennies on the Pound.
When a person enters into an IVA, they enter into a legally binding agreement with their creditors whereby they agree to an affordable monthly repayment that is distributed between all of their creditors for a period of five or six years. As a result, each credit provider is able to recover a much larger portion of the debt owed to them, as opposed to simply selling the debt for a much lower once-off amount. As the IVA is supervised by a licensed Insolvency Practitioner, the credit provider does not need to spend unnecessary costs in chasing and collecting the debt. IVAs can, therefore, benefit credit providers by adding to their bottom line and reducing their debt write-offs.
By partnering with a trusted and reputable debt management firm like Debt Movement, credit providers can give their clients who are struggling financially, the opportunity to find financial freedom, whilst potentially reducing their debt write-offs at the same time.
At Debt Movement, we know that bad debt happens to good people which makes them feel worried and powerless. Debt Movement provides professional debt guidance and services that help people move out of debt, empowering them to take control of their finances so they can live their best lives again.