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IVA – Individual Voluntary Arrangement

IVA stands for Individual Voluntary Arrangement, it is a formal Insolvency Solution. An IVA is an agreement between you and your unsecured creditors, which allows you to repay only what you can reasonably afford over a fixed period of time. It is often seen as an alternative to bankruptcy, and was introduced in England & Wales as part of the Insolvency Act 1986 and in Northern Ireland as part of the Insolvency (Northern Ireland) Order 1989. They are only available to individuals residing in England, Wales and Northern Ireland. If you live in Scotland, please see our Protected Trust Deed page.

An IVA has to be set up and supervised by a Licensed Insolvency Practitioner (IP), it is not possible to have an IVA without an IP. Here are the basics of IVAs:

  • In an IVA, a single, affordable monthly payment is agreed upon. This is then divided between the unsecured creditors included within the arrangement.
  • These payments are usually made for five years
  • At the end of an IVA, the balance of any debts included within the IVA is written off, and during its course, all interest and fees are frozen
  • IVAs are a formal, legally binding debt solution. This means once you enter into one, creditors can take no further action against you, and cannot contact you directly
  • IVAs need to be administered by an insolvency practitioner, who mediates between you and your creditors
  • Creditors benefit from IVAs as well as those in debt, as they generally ensure a larger repayment than bankruptcy would provide
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Are you eligible for an IVA?

To be eligible for an IVA with Creditfix, you must meet certain criteria:

  • Have £6,000 or more of unsecured debt (i.e. credit that is not taken out against an asset such as property)
  • Owe this money to two or more creditors
  • Be a resident in England or Wales.
  • Have a steady income which will allow you to make consistent monthly payments of at least £85 per month.

The above criteria is set by Creditfix and may not be the same for all IVA providers.

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What does an IVA cost?

Setting up and supervising an IVA incurs fees, since the insolvency practitioner responsible needs to be paid for their services.  Some practitioners ask for upfront fees to be paid but generally these are paid out of your monthly repayments.  Creditfix will never ask for upfront fees before proposing your IVA to your creditors.

Here at Creditfix we will only charge fees if an IVA is subsequently approved by your creditors and our fees are only taken from your monthly payments or asset realisations paid into your arrangement. We also offer, as part of your proposal, to start distributing a percentage of the payments made by you from as early as month 3, which means the balances owed to your creditors are reduced from the outset of your arrangement. Most other practitioners only start distributing funds to creditors once the Nominee Fee and Disbursements have been paid in full which could be as long as month 18 of your arrangement. In some cases, creditors amend the terms of the IVA so that we are not required to make payments to them from month three.

In an IVA there are three different types of cost charged by the Insolvency Practitioner.

  1. Nominee’s Fee

This fee covers the setting up and preparation of your IVA proposal. This includes assessing your current financial situation and your repayment offer to creditors, issuing the Proposal to your creditors, the administration and facilitation of the creditors’ decision process used to consider the IVA, and any negotiations with creditors during this process.

The Nominee’s fee is generally a minimum of £1,000

  1. Supervisor’s Fees

These fees are charged for the ongoing administration of the IVA which includes collecting and distributing your monthly repayments, dealing with any queries raised by you or your creditors, completing an annual review of your financial circumstances, reporting annually to you and your creditors about the progress of the IVA, and dealing with the closing formalities.

The Supervisor’s fee is generally based on a percentage of any monies paid into the arrangement and ranges from 15 – 20% of the payments made.  In some cases a flat fee may be charged.

  1. Disbursements

These are costs paid by the IP to third party companies for software licences, insurances, and registrations that are required as part of the arrangement. These may also include payments made for the provision of additional services to provide the best return for your creditors.

Typically the costs of the arrangement equate to around £1,200 per case.

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IVAs vs Bankruptcy

Bankruptcy and IVAs are both formal insolvency solutions which result in all, or part, of your unsecured debts being written off, so it can be tricky to know which is right for you. However, there are a number of key differences which could help you to decide.

With both processes, all remaining unsecured debt is written off upon completion, and creditors can no longer legally contact you.

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IVA Vs Debt Management Plans (DMP’s)

Debt management plans (DMPs) also involve agreeing on set monthly payments towards creditors, so it can be difficult to decide which might be the best option. These are the main differences between IVAs and DMPs

  • Legality
    • Unlike IVAs, DMPs are not legally binding on your creditors.
    • Once you enter into one, creditors are not obliged to stick to the terms.
    • Creditors can still contact you during the DMP.
    • DMPs are not recorded on the Insolvency Register, unlike IVAs.
    • There is no minimum amount of debt required to begin a DMP.
  • Amount Paid
    • Unlike with IVAs, creditors are not obliged to freeze interest and fees in DMPs.
    • You will usually repay the full amount of your debt with a DMP, whereas in an IVA the outstanding balance owing to unsecured creditors at the completion of the arrangement is written off.
    • DMPs are more flexible in that you can reduce / increase your repayments as and when required providing creditors accept any revised offers.
    • A DMP may take longer as you are required to pay back the outstanding debt in full and there is no requirement for your creditors to freeze ongoing interest and charges.
  • Effects
    • Being in a DMP does not restrict your ability to apply for further credit, unlike IVAs.
    • Whilst a DMP in not registered on your credit file, creditors may update their accounts to show that repayments are being made through a DMP.
    • As you will almost certainly be making reduced payments to your creditors they may update your file to show that partial payments are being made.

A creditor may apply a default to your account and this will remain on your file for 6 years. If you satisfy the default it will be shown as satisfied on your credit file, however it will not be removed until the 6 years has expired.

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Missing or failing to make IVA payments

Missing a payment can be risky, so it is advised that you keep your practitioner up-to-date with your financial situation. If you do miss a payment, contact your IVA provider as soon as possible to rearrange payment. They could accept a late payment if you have a good reason.

If you don’t contact them, then they will start to chase you for the outstanding payments and report this to your creditors. Once you have missed 3 payments or the cash equivalent to 3 payments they will send you a ‘notice of breach’. Generally, you have between one and three months to correct any problems by explaining the missed payments and paying as soon as possible. Once you do this, no more action will be taken against you.

If you cannot manage this, talk to your practitioner as they may be able to change the terms of your arrangement. However, they may also simply terminate your IVA, or apply to the court to make you bankrupt. The sooner you inform your provider, the more likely they are to be able to help.

The best way to avoid missing a payment is to keep your practitioner up-to-date with your situation. If you are struggling to pay, there are options available:

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Entering into an IVA can seem daunting, and there is plenty to consider when deciding if it is your best option. Here are the main ways that an IVA might affect your life on a day-to-day basis.

Your Career

Entering into an IVA will usually have no impact at all on your working life – except for the fact that a smaller amount of your wages will be swallowed by debt repayments! However, there are a things which should be considered:

Your Home

If you own your own home then this will be taken into consideration when you apply for an IVA. The Insolvency Practitioner will take into consideration, the amount of equity available to you if you were to sell your home and pay off your mortgage. They would see if this amount would be sufficient to repay your debts in full and what attempts you might have made or consideration you have given to this option.

All properties are generally included within an IVA unless there are special circumstances. This means that your share of the equity in the property will be reviewed in the final year of your arrangement. A further valuation will be undertaken and up to date mortgage / secured loan balances will be requested to establish the equity available in your property. If your share of the equity available is £5,000 or more, you will be asked to attempt to remortgage your home and put 85% of the available equity into your IVA. However, there are certain provisions contained within the IVA protocol that are applied when looking at a remortgage. You would not be expected to sell your home.

If you are unable to remortgage your property then your arrangement may be extended for up to 12 months.

You would not be expected to sell your home in an IVA unless you specifically offered to do so as part of your original proposal.

Your Possessions

When entering into an IVA, you ultimately retain control over your possessions. All assets of value are detailed within your proposal but you can decide which assets to include or exclude from the arrangement. However, your IP will advise you of the likely attitude of your creditors to the exclusion of any of those assets.  If you propose to exclude an asset from your arrangement, creditors may request the sale of them, although your agreement to this is required. All household goods and domestic goods are excluded from your arrangement by law.

You just inform your practitioner of any assets you own, for example:

This information will help the practitioner and your creditors to make an informed decision as to what payments you can afford. There are certain items which are always deemed essential, and their sale will never be suggested:

Your Bank Accounts, Savings, and Pensions

An IVA allows you far greater control over your money than bankruptcy would, including any savings and pensions you hold.

Bank Accounts

This is because the bank may exercise their ‘right to offset’ by automatically taking payment towards your debt from your account, which could leave you struggling to meet you essential living costs. Switching your account protects you from this happening.

Savings

Pensions

Your Privacy

Since IVAs are a formal solution, they are entered on the Insolvency Register, which is a public record, openly accessible online. Your IVA will not be published anywhere else, though, and can only be found by specifically searching the database for your name. These are the details included on the register:

In cases where there is a threat of violence, the individual’s address can be removed from the register.

A record of your IVA remains on the register for three months after it has been completed or terminated. Following this, it is removed.

Your Credit Rating

Your IVA will be registered on the Insolvency Register and on your credit reference file, therefore taking out further credit will be more difficult. Creditors will be able to see this entry and may charge you higher interest rates, or deny the credit altogether. The IVA remains on your credit file for 6 years from the date of approval but will be shown as satisfied if the IVA is completed successfully within this period. Once the IVA is completed you are free to apply for credit and start to repair your credit file.

You need written permission from your insolvency practitioner to get a loan of more than £500, unless it is for public services such as utilities.

If the worst should happen

In the unlikely event that the worst should happen and you should pass away before completing your IVA, your loved ones should not be affected. With the exception of joint debts and any guarantors of your debt, your spouse, children or other relatives are not expected to pay off your debts. However shared assets, such as houses, could be at risk from creditors who may make claims on the estate.

Your next of kin will be required to send a copy of the death certificate to the IVA provider, who will advise you of the next course of action.

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