IVA

What is an Individual Voluntary Arrangement?

Put simply, an Individual Voluntary Arrangement (IVA) is a legal agreement between you and your creditors where you agree to pay back what you can afford over a fixed period (usually 60 months), with the remaining debt written off.

How can an Individual Voluntary Arrangement help you?

If you are struggling to pay your creditors each month, then an Individual Voluntary Arrangement (IVA) could be the right solution for you. An IVA can: -

• Reduce your creditor repayments to one single affordable monthly repayment.
• Legally prevent your creditors from adding any further interest or charges.
• Allow most people to become debt free in 5 years.
• Prevent your creditors contacting you or taking legal action to recover their debt.

Disadvantages of an IVA

• Your credit rating will be adversely affected throughout your IVA and usually, for an additional year after completion.
• Should the IVA fail, creditors may back date interest on your debts or may request your Supervisor petitions for your bankruptcy.
• Not all debts can be included in an IVA, such as court-imposed penalties/fines.
• If you come into any extra money whilst in your IVA, this will be taken into account and you could be expected to pay any windfall into your IVA as well.
• You may have to downgrade or sell any really high value assets (such as exchanging a luxury car for a more economical one).

Advantages of an IVA

• An IVA is a way to avoid bankruptcy proceedings and property repossession.
• An IVA allows you to make one affordable fixed monthly payment.
• Legal action by your creditors is stopped as long as you make your IVA monthly contribution.
• The interest on your debts is frozen the same day the IVA creditor meeting is approved.
• Debts included in your IVA could be cleared in 5 years.

Points to consider:

• Homeowners entering into an IVA should be aware that they will be expected to release any available equity for the benefit of their creditors. Due to credit scoring it may be that the terms of such an arrangement are less favourable. It could also mean that releasing equity is restricted completely and, in protocol compliant cases, the IVA can be extended by a further 12 months.
• At the start of an IVA an assessment of your income and expenditure items are taken and thereafter reviewed annually. Creditors will require evidence should certain items be considered excessive and if suitable proof cannot be supplied, you will need to reduce your spending in those areas.
• Acceptance of the IVA lies with the creditors. For an IVA to be accepted, 75% of the voting creditors by debt value must approve, therefore any single creditor with 25% or more of the overall debt level must not reject.
• There may be other suitable options for dealing with your debts and where this is the case we will make you aware of them. If an IVA is not an appropriate solution for you we will signpost you to Money Helper for advice.
• An annual financial review of your income and expenditure will take place on each anniversary of the approval of your IVA until completion. This will determine whether you can afford to increase your monthly contributions for the benefit of your creditors. Increases in your living expenses and changes in circumstances are taken into account during this review. There are restrictions on the expenditure of a person who enters into an IVA.
• There will be no upfront fees charged. The Nominee’s fees and Supervisor’s fees are paid from your agreed monthly contribution. If you became able to repay your debts in full the amount you would pay would include these fees.
• Entering into an IVA will be entered on a public register

What is an Individual Voluntary Arrangement (IVA)?

Individual Voluntary Arrangements form part of the Insolvency Act of 1986. An IVA is an alternative to bankruptcy designed to help people with high levels of unsecured debt.

An Individual Voluntary Arrangement, or IVA for short, is a formal and legally binding agreement between you and your creditors providing both parties with certain legal protections whilst you solve your debt problems.

Once an IVA is in place your creditors must stop all further interest and charges on your debts. All letters and phone calls from creditors in relation to any debts you may have should then cease. Once 60 months have ended, and you have kept to the arrangement any outstanding debt included in the IVA will be written off.

What is the purpose of an IVA?

An IVA helps those in financial difficulties make a legally binding agreement with their creditors to settle unsecured debt within a reasonable time. Creditors will be unable to demand additional payments and all interest and charges will be frozen.

How are the monthly repayments calculated?

Everything is based on what you can afford each month. This is calculated before any agreement takes place and will be based on your monthly income and expenditure. Your financial situation will be reviewed annually to consider any change in circumstances. Once the final payment is made, any outstanding debt will legally be written off, which can sometimes mean a sizeable portion of your unsecured debt.

What about my house?

If you are a homeowner your home is never at risk, though, in some cases, at the end of the 5-year period you may be required to release some of the equity in your home to pay into the IVA. If you are unable to release any equity, you may be required to pay an additional 12 months of payments in lieu of equity.

How does it work?

The IVA proposal that you put forward to your creditors will be legally binding and therefore you must keep up with your repayments. However, as soon as your arrangement is finished, you will be free from all debts included in the IVA regardless of how much is still owed.

The IVA proposal that your put forward to your creditors will be legally binding and therefore you must keep up with your repayments. However, as soon as your arrangement is finished, you will be free from all debts included in the IVA regardless of how much is still owed.

Who qualifies for an IVA?

Usually your personal debts must be over £6,000 and you must have 2 or more different creditors, but this can depend on personal circumstances. You must also be able to offer a reasonable monthly repayment to your creditors.