What is an IVA? All you need to know

Posted on 11:00am Friday 27th Jul 2018

What is an IVA?

An Individual Voluntary Arrangement or IVA is a debt solution between you and your creditors to pay off as much of your debts as you can afford over a 5 year period. IVAs are only available to residents in England and Wales. It is legally binding and set up and supervised by a Licensed Insolvency Practitioner (IP).

IVAs follow protocol which is a set of voluntary guidelines which most IPs follow and covers how the IP should behave and how the IVA should be put together. It has been put in place to make the IVA process quicker and simpler for all involved.

In an IVA a single, affordable monthly payment is agreed upon which is then divided among your unsecured creditors - 75% of your creditors must agree to your proposal for your IVA to go ahead.

Your monthly payment is based on how much you have left over after your essential living costs have been accounted for.

At the end of the 5 years, the balance of any remaining debts which were included within the IVA will be written off.

All the interest and charges will be frozen on your debt and you and your home will be legally protected from any further enforcement action by your creditors

There also is the option to enter into a “full & final IVA” which allows you to make a one off payment to your creditors. This may be suitable for you if you have savings, have a family member who is willing to provide funds, or you are in the process of selling an asset which will release funds.

An IP will advise which solution is best for your circumstances.

Am I eligible for an IVA?

An IVA may be a suitable option for you if:

Have at least £6,000 or more of unsecured debt, owed to two or more creditors
You must be a resident in England or Wales
Have a steady monthly income which allows you to make consistent monthly payments
Have at least £80 spare income a month to pay towards your debts

This is a guide only, it is not guaranteed you will be accepted for an IVA, you should contact an IVA provider for more details.

How much debt is written off with an IVA?

You repay what you can realistically afford each month over the 5 year period. So how much debt is written off depends on what you owed originally and how much you are able to repay over the 5 years.

How much does an IVA cost?

Again the cost of an IVA depends on how much you can afford to pay each month and whether any assets that you own have any equity in them that can be released to pay towards it.

Your IP who administers your IVA does receive a fee for setting up and managing your IVA, however this is worked into your monthly payment you make to your creditors, so it doesn’t occur you any extra cost at the start or the end of the arrangement.

What debts are included in an IVA?

Most unsecured debts can be included in your IVA:

Credit cards
Personal loans
Overdrafts
Payday loans
Store card and catalogue debts
Gas, electricity and water bill arrears
Council tax arrears
Income tax/ National Insurance arrears
Tax credit/ Benefit overpayments
Debts to family and friends
Other outstanding bills

The debts which can’t be included in your IVA:

Mortgages
Other secured loans
Hire purchase agreements
Debts incurred through fraud
Court fines
TV license arrears
Student loans
Child support arrears
Social fund loans

Joint debts can be entered into your IVA agreement however the other named person on the debt will still be responsible for making their payments.

Interlocking IVAs

If you and your partner both want to enter into an IVA it is possible for them to be set up and administer as one meaning you can make one affordable repayment to all your creditors through the IVAs any joint debt will also be included within both arrangements.

IVA pros and cons

With any insolvency arrangement there are advantages and drawbacks involved. Below are some to consider when deciding if an IVA is right for you.

Advantages:

You only pay back a single affordable payment each month
You keep your house- however you may need to release some of the equity that is available
Any unaffordable debt will be written off – on average this is usually between 50% and 60% of the original debt
Interest and charges are frozen as long as you keep up your payments
You are legally protected from creditor enforcement action

Disadvantages

If you own your home and it has equity, you may be asked to release some of it to pay back your debts
Your IVA will be held on the Insolvency Register and your credit file for 6 years, meaning your credit rating will be affected during that time
If your IVA fails for any reason, any fees you have paid up to that point won’t be able to be recovered
If you come into any money through inheritance or a windfall over £500 during the term of your IVA you will be expected to pay this towards your arrangement
If you fail to make the payments each month, your arrangement could fail which could lead you to being made bankrupt

IVA application

The process of setting up an IVA is as follows

Contact an insolvency practitioner or company who deals with IVAs to discuss your options
One the IP has agreed to make your IVA proposal, this will be sent to your creditors and they will arrange a creditor meeting
At the creditor meeting, all your creditors will vote on whether or not to accept the IVA, your proposals needs to be accepted by your creditors who hold more than 75% of your total debt – so if the creditors you owe the most debt to vote against the proposal it may not go through
Sometimes creditors will ask for amendments such as asking you to pay more a month or include assets – you need to agree to this before any amendments are made
If your arrangement is agreed, your IP will supervise and ensure you make your monthly payments