Dealing with mounting debt burden is daunting task. The global economic slow down and credit crunch have made the task tougher. The burden of unsecured loans and credit card bills is disrupting the smooth functioning of life for many Britons. And fresh loans are not easily available to pay off the existing debt. The real estate prices are also shrinking. So, 125% LTV (loan to value) on residential properties has now become a matter of past.
There are 3 options left before a debt ridden person to become debt free. They are debt consolidation, bankruptcy and individual voluntary arrangement. This article offers a brief comparative study of the three options.
Debt consolidation v/s IVA
Debt consolidation is the process of paying off the existing debts with a fresh loan. The loan is generally secured in nature. IVA is the legal binding arrangement between the debtors and creditors to pay off the debts according to the repayment capacity of the debtor. While debt consolidation is a viable option for small debt burden, IVA can help the debtor if the existing debt amount is huge. In the process of debt consolidation, the borrower has to pay the full loan amount. In case of IVA, the debtor is declared debt free after 7 years even if he/she has not repaid the loan amount completely.
IVA v/s bankruptcy
Both the methods are equally helpful to make the debtor free from debt burden. But in case of IVA UK, the information regarding the inability of the person to deal with his/her debt is not disclosed. If the person applies for bankruptcy, his/her information are made public by advertising it in the local newspapers. So, people holding responsible positions like army personnel, bank employees, doctors, policemen prefer IVA. During the IVA agreement, the borrower can raise fresh loans. But, people filing for bankruptcy are debarred from this option.
