What is an IVA?
IVAs are one of the most popular debt solutions in England, Wales and Northern Ireland – in the first three quarters of 2017 alone, 44,400 people used one to help sort out their debts. Clearly, if you need some help with debt, you are not alone. An IVA could be the right solution to give you a fresh start and get your finances back on track.
What does IVA stand for?
IVA stands of Individual Voluntary Arrangement. It is an arrangement made between you and your creditors to deal with your debts in a way that’s affordable for your individual circumstances.
The scheme is government-backed, meaning that once your creditors have agreed to the terms of an IVA, they cannot take any legal action against you, or even continue to contact you.
IVAs allow you to write off debt which you would not be able to pay back in a reasonable length of time, without having to go through the process of bankruptcy.
Bankruptcy is usually considered to be a last resort for dealing with unmanageable debt, since it puts your assets, including any property or vehicles you might own, at risk.
IVAs, on the other hand, allow you to retain control of your assets, and instead make a single monthly payment towards you unsecured debts based on what you can afford. These repayments usually continue for five years, at the end of which, any remaining debt you owe is written off.
Could an IVA be right for me?
To be eligible for an IVA, you must meet the following criteria:
- Have at least £6,000 of unsecured debt
- Owe money to two or more creditors
- Live in England or Wales (Scottish residents could consider a Trust Deed, which is a similarly structured solution)
- Be able to afford monthly payments, usually of at least £80
IVAs are best suited to people who can’t cope with their current debt obligations, but could afford to pay back a proportion of what they owe through smaller, regular instalments.
What can I expect from an IVA?
To enter into an IVA, you must speak to a licensed Insolvency Practitioner (IP). Initially, they will help you decide whether an IVA is right for you.
If they agree that this is the best solution, they will proceed to ask you about your financial circumstances (employment status, income, expenditure et.) and calculate what you could reasonably afford to pay towards your debts each month.
Next, the IP will contact each of your creditors, and propose this solution to them. If creditors accounting for 75% of your debts agree to the IVA, it is approved, and all your creditors are bound by its terms, whether they agreed to it or not.
It might seem odd that creditors would agree to a solution which means they will not be repaid in full, but since they will usually be able to recover more of the debt with regular payments than by petitioning to make you bankrupt, they are likely to vote in favour of the IVA.
Once your IVA has been agreed
Once the IVA has been agreed upon, you must simply continue to make your payments for the agreed upon length of time.
You will no longer receive any communication from your creditors, who will instead be in touch with your IP. IPs do, of course, have to be paid for their services, but these fees are taken from your monthly payments, and do not affect how much you will be asked to pay, which is based entirely on what you can afford.
IVAs do allow a certain amount of flexibility should your circumstances change, but it is vital to contact your IP and let them know as soon as you think you might have to skip a payment. Missed payments can usually just be added to the end of your IVA.
If you are a homeowner, you may be required to release some equity from or remortgage your home as part of your IVA agreement, to release additional funds for repaying your creditors. If you do not own property, you might be asked to make an extra twelve monthly payments instead.
One advantage which IVAs have over bankruptcy is that they allow business-owners to continue running their companies. This was one of the government’s main motivations for introducing IVAs as part of the 1986 Insolvency Act. Following its success helping business owners continue to trade, IVAs began to be offered to individuals.
Entering into an IVA can be a great solution for overcoming unmanageable debt but, like anything, there are a few disadvantages. IVAs are recorded on a public register for their duration plus three months, which can negatively impact your credit score.
However, problem debt is likely to negatively impact your score too, so in the long-run it could improve through your taking action to deal with your debts. If you fail to meet the terms of your IVA, you also run the risk of being made bankrupt, which can be a stressful experience and can result in the loss of assets.
Finally, entering into an IVA can prevent you from working in certain jobs (although the vast majority are unaffected) – mostly in the financial sector, so ensure you check your contract of employment before choosing one.
Overall, IVAs can give you a fresh financial start, and write off your debts in a relatively short space of time. This handy online quiz will help you to figure out if you are a good candidate for an IVA. For further advice, you could speak to one of Creditfix’s expert advisors by calling 0808 2085 198.