What is an IVA?
An Individual Voluntary Arrangement (IVA) is a formal insolvency solution. If you are struggling with your debts, it can help you by organising your payments into one, affordable monthly payment. It is a great alternative to Bankruptcy, as you are able to retain your home and other assets, and up to 70% of your debt can be written off at the end of your agreement, which is usually 5 or 6 years long.
Financial worries are regularly voted the biggest source of stress for adults, and it has been estimated that more than 8 million adults in the UK have problem debt. Many of those people believe that bankruptcy is the only solution. This isn’t true. An IVA is set up and managed by a Licensed Insolvency Practitioner, so it is a legally binding solution on your creditors. It is available to people in England, Wales and Northern Ireland, and there is an equivalent called a ‘Protected Trust Deed’ available to people in Scotland.
With an IVA, you are able to consolidate all your unsecured debts into one payment. Unsecured debt is debt that is not taken out against an asset, such as credit card debt. Whereas, secured debt is debt secured against an asset, such as a mortgage. Debts that can be added to an IVA include:
- Credit Cards
- Personal Loans
- Catalogue, and Store Cards
- Debts to families and friends
- Payday Loans
- Tax credit/benefit overpayments
- Income tax/National Insurance arrears
- Utility bill arrears
- Other outstanding bills
Debts that cannot be included in an IVA:
- Child support arrears
- TV license arrears
- Student Loans
- Social fund loans
- Hire Purchase Agreements
- Debts incurred through fraud
- Court fines
How does it work?
First of all, an advisor will chat to you about your financial situation to find out if you are eligible for an IVA. We offer judgement-free, friendly advice, and we will work together with you to help you to understand your income, expenditure and debt. This will allow us to figure out how much money you have left after you have paid for your essentials, such as food, clothes, bills, and rent. This is your ‘surplus income’.
Using this information, we can then put together a proposal to show to your creditors. This proposal will outline your financial circumstance and offer your surplus income as a monthly payment. This payment would be paid to us, your IVA provider, and we share it out among your creditors. Your creditors then vote to accept or reject the proposal. Not all your creditors will necessarily vote, but if 75% of those that do accept the proposal, then you will start your IVA.
An example: Judy has £20,000 of debt, and is currently struggling to pay £350 a month into those payments, to many different creditors.
After working out that Judy has a monthly surplus income of £153, we propose that for 60 months, she pays £153 a month. Her creditors agree.
She pays £153 to her IVA provider every month, and they divide that amongst her creditors.
She now has to pay £197 less every month, and in 5 years, after the agreement has been met, her remaining debt will be written off – around 54% of her debt.
Could you get an IVA?
If you want to get an IVA:
- You need to have two, or more, creditors
- You must have a minimum of £6,000 of unsecured debt.
- You must resident in England, Wales or Northern Ireland
- You must have a steady income, which will allow you to make regular monthly payments
The Benefits of an IVA
- Only one monthly payment to worry about, so it is easier to stay on top of your finances
- Your monthly payment is based on what you can actually afford
- There are no upfront fees. The cost of setting up and maintaining your IVA is taken from within your monthly payment.
- Creditors who voted against your IVA are still bound by it, as long as the IVA was approved by 75% of your creditors. All your unsecured debt will be dealt with by the IVA.
- Successfully completing your IVA will result in your remaining debts being written off.
- Unlike bankruptcy, you will never be forced to sell your home, car, jewellery, tv, or any other property.
- When your IVA is approved, your interest rates and charges are frozen, so your debt does not grow
- Unlike Debt Management Plans, which are an informal solution; once your IVA is approved, your creditors legally cannot contact you or take action against you
- There is flexibility if your situation changes, such as if you become unemployed. Your Insolvency Practitioner can authorise a payment break, or even ask creditors to allow you to pay smaller amounts.
What are the risks?
- You may be asked to release the equity in your home. Equity is the amount of money you would make if you were to sell your home (current value of home – remaining mortgage – cost of selling your Home = Equity). You would release this equity by remortgaging your home. You will never be asked to sell your home.
- It is possible to arrange for another year of payments, in lieu of equity.
- Your IVA will be registered on the Insolvency Register for 6 years. This is accessible to the public, but you can petition to have your address removed if you feel it puts you at risk.
- While your IVA is registered on the Insolvency Register, your credit rating may be affected. Although, once your IVA is completely finished, your debts are written off and your IVA is removed from the register, you can begin to rebuild your credit rating again.
- If you miss your payments, or don’t meet the terms of your agreement, your IVA may fail. If it fails, you are still liable for the full amount of your debt, and your creditors may lose faith in your ability to pay and petition for you to go bankrupt.
If you are interested in finding out more about IVAs, or would like further advice about your debts, fill in our form.