An IVA is only available to residents in England, Wales and NI
It’s no secret that entering into an Individual Voluntary Arrangement (IVA) will have a significant impact on your finances but how long will it continue to affect the financial decisions you make in the years after you exit your arrangement?
There are so many timeframes involved in having an IVA that it can be difficult to know how long it will appear on your credit file and whether you still have to declare it after has been removed when you apply for further credit products, such as a mortgage.
In this guide, we’ll explain everything you need to know about the long-term impact of entering into an IVA so you can know exactly what to expect from your arrangement.
What is an IVA?
In England and Wales, an IVA is a legally binding agreement between you and your creditors to clear your unsecured debt through a series of monthly debt repayments over a set period of time (usually five years).
An IVA can only be managed by an Insolvency Practitioner (IP) licensed by the Insolvency Practitioners Association who will review your financial situation and determine a suitable payment plan that is manageable and affordable for you.
If your IVA proposal is accepted by your creditors, any interest and charges on your debts will be immediately frozen and you will be protected from further contact or harassment from creditors and debt collectors.
When you have fulfilled the duties outlined in your IVA proposal and no longer owe money, you will officially be declared debt-free and your remaining balance will be cleared. This will not make the debt disappear but you will no longer be legally required to repay it.
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How long will an IVA stay on my credit file?
Whilst a typical IVA term will only last five years from start to finish, it will stay on your credit record for a total of six years from the date it was approved. This is still the case even if you choose to repay your debt in a single lump sum which usually takes around six months.
During this time, your credit rating will be significantly lowered and you may struggle to get further credit such as a loan, mortgage, or even a phone contract.
It is also worth remembering that if your IVA includes several different debts, they may be listed separately on your credit report despite being repaid through the same arrangement.
How will an IVA affect my credit score?
Like most debt solutions, there is no escaping the fact that an IVA will have a significant impact on your credit score for a number of years.
Whilst an IVA proves that you are actively making monthly payments towards your unpaid debt, it also proves that you have missed payments in the past and may potentially do so again in the future.
This can make lenders wary of your ability to stick to the terms of any future arrangements and you will be considered a high-risk borrower. As a result, you will struggle to get a loan, mortgage or phone contract and even if you are approved, you are likely to face higher interest rates.
However, despite the fact that most debt solutions affect your credit score for up to six years, they can help you clear your debts, improve your poor credit and learn some healthy financial habits that will stick with you for life which, for most, is worth the lower credit score.
Do I still have to mention an IVA after six years?
Whilst your IVA will be removed from your credit file after six years, you may still need to declare it to potential lenders after this time if you wish to apply for further credit.
For example, when you are completing a mortgage application, you must disclose information about your IVA regardless of whether your lender asks for it. This will help to provide them with a complete picture of your credit history and help them decide whether you are a reliable borrower and, therefore, likely to make your monthly payments.
It can be tempting to leave out information about your IVA when you are applying for credit after six years but this is classed as fraud and may prevent you from getting a mortgage altogether.
Your IVA will be removed from your credit file after six years
Can I get a mortgage after an IVA?
After you leave an IVA, it is completely normal to be worried about your future financial prospects but once you have repaid your debt, there is nothing stopping you from continuing to live your life as normal and applying for a mortgage if you wish.
However, because it can be difficult to find a lender willing to approve a mortgage with an IVA (or even just after an IVA), some financial experts recommend starting your search with a specialist mortgage broker. Specialist lenders have experience in helping people in active IVAs or that have recently left IVAs to find an IVA mortgage offer that suits their unique financial situation.
It is also worth remembering that, even if you do get approved for a mortgage after an IVA, you may be faced with higher interest rates or be required to pay a higher deposit. This is to reassure mortgage lenders that you will make your monthly payments and are less likely to default.
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Do I have to declare an IVA to an employer?
As well as disclosing your IVA to a mortgage lender, you may also have to disclose your IVA to an employer after six years but this is usually only the case if you work in certain roles within the finance, law, property or accountancy industries.
If you’re not sure whether you should mention an IVA to a new employer, there are a number of things you can do to find out:
- Check your employment contract
- Arrange a meeting with an employee of the HR department
- Reach out to your professional trade body
- Discuss the matter with your trade union
