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Over the past year, the number of people entering IVAs (Individual Voluntary Arrangements) has increased significantly. But why might this be?

First of all, we will take a quick look at what an IVA actually is.

An IVA is a formal debt solution, designed to allow borrowers struggling with unmanageable debt to become debt free in five years. In most cases, an IVA would only be suitable for someone who can't afford to repay their debt within a reasonable period of time but can commit to making reduced monthly payments for the duration of the agreement.

Before an IVA can begin, voting creditors who collectively own 75% or more of the borrower's debt would have to accept the terms of the agreement.

If they do accept, the borrower can start making reduced monthly payments to their Insolvency Practitioner (IP) - the insolvency expert who will supervise their IVA for them - who will subsequently distribute funds amongst the individual's unsecured creditors as agreed before the IVA began.

Payments will, in most cases, continue for five years.

Now we know what an IVA is, we will take a quick look at some of the benefits of an IVA to try and understand why so many people have entered them to tackle their debts.

* Once the IVA comes to a successful conclusion, any outstanding unsecured debt will be written off* Individuals will know exactly when they will become debt free (assuming they can uphold their side of the agreement).

* Monthly payments will be based around the amount the borrower can afford after their essential expenses (mortgage/rent payments, food and travel costs, utility bills, etc.) have been covered.

However, although there are benefits to an IVA, there are also drawbacks - for example:

* Entering an IVA will have a negative impact on an individual's credit rating for six years - which will affect their ability to obtain further credit.

* If the individual is a homeowner, they may be required to release some of the equity in their property during the final year of the agreement. This money will be used to repay more of their outstanding debt.