An Individual Voluntary Arrangement is an official and legally-binding agreement between yourself and your respective unsecured lenders to repay your debt across a fixed timeframe.
IVA’s can enable you to acquire the breathing space necessary to tackle your debt without experiencing too severe a financial strain on your income and can provide you with a flexible debt solution to your existing monetary difficulties. However, they can also be expensive in the long term and there are inherent risks that need to be kept in mind before opting to use this measure.
The following page will identify the key elements to an IVA and outline the fundamentals to how it works, so you can decide whether it is the optimum debt solution for your unique set of circumstances.
What is an IVA?
An Individual Voluntary Arrangement is a formal and legally-binding deal between yourself and your creditors to repay your unsecured liabilities over a fixed period of time. Once an IVA agreement is reached between yourself and your lenders and is authorised by the courts, both parties will then be legally obligated to adhere to the terms of the arrangement.
The debt solution can be classified as a type of insolvency though it differs hugely from the equally radical bankruptcy.
An Individual Voluntary Arrangement has to be devised and instigated by a licensed legal operative, also known as an insolvency practitioner. Typically these roles will be fulfilled by either a lawyer or an accountant. The IP will always ask for a fee from you in order to facilitate your acquisition of an IVA, with the average costs typically around £5,000.
However, once you have attained the services of an IP, they will then be obligated to interact and handle your creditors for the duration of your IVA.
It is imperative that if you are fully aware of the fees they charge before making the final decision to utilise the services of a debt management organisation in order to set up your IVA, Usually, the services of a debt management firm will be more expensive because you will be asked to pay an additional charge to the company as well as payments to cover the costs of using an insolvency practitioner.
How do the repayments work?
When using an IVA as your chosen debt solution, you will have to work collaboratively with your insolvency practitioner in order to formulate a new, reduced repayment plan which reflects your circumstances optimally.
The new repayment proposal will take into consideration your monthly expenditure at present and the level of disposable income you realistically have available to contribute towards paying your debt back each month. A figure will be determined from this evaluation of your financial situation and this calculated sum will be then be posed to your creditors as an offer for your new monthly repayment size.
All of your unsecured debts can be included within an IVA, meaning that you stand to amalgamate all of your individual loan repayments each month to multiple creditors into a single, affordable sum to address the entirety of your unsecured debt. In order for the IVA to be officially enacted, you will need to get creditors who are owed at least 75% of your total debt to accept the reduced repayment plan, and ensuring this will mean that the minority who vote against its implementation will be legally bound regardless.
To give an example, if you owe £30,000 to 6 creditors, and 3 of your creditors, whom you owe collectively £22,500, acquiesce to the IVA, then the other three creditors will be legally bound to the terms of the IVA. You will then be able to make the lower monthly repayments for an extended period of time, typically five years, during which time you will be expected to make these contributions consistently and on-time.
The payments will need to be given straight to your insolvency practitioner each month, who will then reallocate the money between your respective creditors. It is also worth remembering that certain IP’s will retain a portion of your monthly payments as a fee charge.
Will I be able to write off some of my debt with an IVA?
If you have failed to clear the entirety of your debt by the end of your Individual Voluntary Arrangement, then the remainder will be written off. Your presiding IP should give you information about this nearer the time, though it is worth keeping in mind that this will occur irrespective of whether you have cleared the full balance or not.
Do I qualify for an IVA?
Not everyone is applicable to use an IVA, and you will need to consider the following in order to ascertain where you qualify for an IVA:
- Debts an IVA covers
- Income and assets necessary to qualify for an IVA
Is an IVA right for you?
Whilst an IVA can provide you with more time to pay your debt and recover financially, they nevertheless come with a number of risks that might make them unsuitable to your circumstances:
- Money within your savings account and pension pot might be required to be used to address your debt under the terms of an IVA
- If you are a property owner, you may be required to remortgage your home.
- It might impact your work, particularly if you are a lawyer or an accountant.
- If your relapse into financial difficulties whilst on an IVA, and begin to miss your payment dates, then your entire agreement could be rescinded and you may end up being declared Bankrupt.
What happens at the end of an IVA?
An IVA will run for a fixed period of time, though this usually takes the form of 5 years. After the specified number of years has elapsed, the remaining balance of the debts within your IVA will be written off, meaning you won’t be required to make any further payments to your creditors.
A reference of your IVA will remain on your credit file for up to 7 years, though a record of it will be removed from the Insolvency Register upon successful completion.
Deciding on an IVA
- How does an IVA work?
- Which debts can I include?
- How much does an IVA cost to set up?
- Income and Asset Requirements
- How an IVA will affect homeowners
- How an IVA will affect your bank accounts and pension
- How an IVA will affect your credit rating
- How an IVA will affect your work, home and assets
- The lasting power of attorney
- Is an IVA the right solution for me?