An Individual Voluntary Arrangement (IVA) is a legally binding agreement between yourself and your lenders to repay your debt in regular increments over a fixed time frame. In order for a debtor to obtain an IVA, they need to first acquire the services of a qualified accountant or solicitor, also known as an insolvency practitioner.
IVA’s can be a useful way for an individual suffering with financial difficulties to spread out their payments and reduce their monthly contributions to their creditors so that they have more breathing space in which to address their debt. However, they also come with a number of inherent risks which need to be taken into consideration before any action is taken to have an IVA set up.
It is not possible for everyone to obtain an IVA – there are specific criteria that must be met in full in order to qualify for the attainment of one. The following guide will clearly specify all the asset and income requirements you will need to meet in order to be applicable to set up an IVA, so you can ascertain whether it is an ideally suited debt solution to your situation.
In order to set up an IVA, you will need to ensure that you have a sufficient amount of disposable income available to use each month to go towards repaying your creditors. Typically, you will need to provide evidence to your lenders that illustrates that you have at least £100 worth of disposable income each month, and the likelihood is that your application for an IVA will be rejected if you are unable to afford to contribute this much towards your debt on a monthly basis.
Nevertheless, it should be noted that an IVA is a flexible debt solution, and can often be modified in accordance with a debtor’s circumstantial situation. As such, it is possible to change the manner in which you make your payments if there is a sudden change in your circumstances, such as being made redundant. In cases such as these, when you would not have the sufficient level of income to pay for your monthly IVA contributions, you might be able to pay your creditors in a lump sum, providing you have itinerary at your disposal which can be sold to contribute towards your debt repayment.
Once you are on an IVA, your presiding insolvency practitioner should give you advice about which repayment methods suit your circumstances the most. Furthermore, they may also provide you with useful tips about the measures you can take to raise the amount of disposable income you have each month to contribute towards your debt.
Usually, an IVA will only be beneficial to your situation if you are someone who currently receives a steady and predictable wage each month. This is due to the fact that an IVA is a long-term debt solution, and you are required to make on-time and full monthly payments to your insolvency practitioner. As such, if you are aware that the amount you receive from your job varies from month to month, then an IVA will be poorly suited to you and it might be better to consider a different debt solution.
Prior to making the final decision about whether to set up an IVA, you should create a monthly finance plan so you can determine how much disposable income you have available to you each month. Your disposable income should be calculated by identifying how much you spend each month on areas essential to your daily living, such as on food, bills, housing and travel, and then subtracting this from your monthly income. You can then use this figure to ascertain whether you have enough spare money each month to pay into a potential IVA and if you believe you do then you can then budget accordingly to ensure that you have a sufficient level of disposable income to adhere to the terms of your IVA.
You will need to provide your insolvency practitioner with a copy of your finance plan if you opt to use an IVA, so that they can make a value judgement about whether you can realistically afford to make your payments each month.
Lump sum cash
During your IVA, your circumstances could undergo a sudden change which could result in you enjoying a sudden acquisition of a lump sum of cash, such as money won in the lottery or given to you by a deceased relative in their will. This cash will usually have to be used in your IVA, meaning that you’ll have to allocate a portion of it each month in order to make up your monthly IVA contributions to your lenders. You might decide that it is better for you to make certain monthly payments with your disposable income, and others with the lump sum of cash, depending on which method suits you best at a certain time.
Your assets are the itinerary and belongings under your ownership which have a substantial market value, such as your property, vehicle or land. In order to set up an IVA, there are no official asset requirements, though you might find it useful to sell some of the ones that are not essential to your day-to-day living in order to use the money to repay some of your debt. It is also possible to use your assets within your IVA, meaning that you can put them up for sale and utilise the cash to make your monthly contributions to your lenders.
If you are currently opening IVA proceedings, then you’ll need to alert your presiding insolvency practitioner about all the assets you currently own so that they can make a value judgement about whether it is necessary to place them into your IVA. Remember, you are obligated to let them know about the entirety of your assets and a failure to do so will constitute a breach of law.
If you are a property owner, you will most likely be asked to obtain a valuation of your home during the last year of your IVA. This condition will usually be specified to you at the start of your IVA by your insolvency practitioner.
If it emerges that there is equity in your home, you will typically be asked to remortgage your home and utilise the excess cash from doing so to make a lump sum payment into your IVA.
Remember, you should not be forced to beginning proceedings for the sale of your home in order to raise a lump sum of cash to pay into your IVA. If you are someone who has been ordered to put your house up on the market, it is strongly advised that you look for professional advice immediately.
If it arises that you are not applicable to remortgage your home, you will simply be asked to carry on making your payments as normal for the remaining year of your IVA
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?