Is An IVA Worth it?

Is An IVA Worth It

1 August 2022

Is An IVA Worth It In 2022

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Being in debt is stressful, and it can be really hard to know what to do! Luckily, we break down how an IVA, one type of debt solution, could help. 

By looking at the perks and drawbacks of IVAs we can help you to figure out if an IVA is worth it. Before agreeing to an IVA, though, it is smart to talk through your plans with your family and a professional advisor.

Keep reading below to find out if an IVA could be a solution for your unsecured debt.

Here is also a useful vide that explains more about IVAs.

How does an IVA affect your life?

An IVA can have a positive or negative impact on your life. This is why you need to consider whether an IVA is right for you. 

The main benefit once an IVA is in place is that you are protected from your creditors. This means creditors cannot charge interest or take legal action during your IVA, so the amount you need to pay back is fixed. 

An IVA may also be a great option if you want to rebuild your credit ranking so that you have a better credit file for the future. Provided you meet all monthly repayments and pay off your debts, your debts will eventually be taken off your credit file. This can help you get things like car finance and mortgages in the future. 

However, it is worth really considering whether you can afford your IVA payments, as some people’s debts are too high for their income. We recommend getting professional IVA advice from a debt advisor, to ensure you deal with your debt problem in the best way.

Towards the end of IVA debt solutions you often have to give a lump payment to your creditors. If you cannot do this due to finances, an extra 12 months might be put onto the IVA. This means another 12 months until the IVA disappears from your credit file.

Individual voluntary arrangement

What are the negatives of an IVA?

During your IVA your credit rate will fall. It will remain low for a year even after you complete the IVA. 

However, for most people that owe money and qualify for an IVA have a weak credit history anyway. So, in the long run, dealing with your debts using an IVA is a solution to low credit.  

Many people entering into an IVA often find themselves having to remortgage their home. However, with an IVA the remortgage normally happens in the last year of the legally binding agreement. 

"The main benefit once an IVA is in place is that you are protected from your creditors. This means creditors cannot charge interest or take legal action during your IVA, so the amount you need to pay back is fixed."

That said, people that owe money for unsecured debts are often at risk of losing their home altogether. So it is definitely worth getting advice, as an IVA can help you keep your home even if you do have to remortgage with this solution. 

People entering into an IVA may also have to sell any assets they have of particularly high value. The reason for this is so that you can pay back the people you owe money to, somewhat, before the IVA begins. 

Finally, if you are unable to make a monthly repayment and this happens repeatedly your unsecured creditors might try and declare you bankrupt. 

Remember, an IVA is not suitable for secured debt, such as a secured loan or any other debt that has collateral. 

What assets might I have to sell to give my creditors a lump sum? 

In the past people may have to swap expensive cars with an expensive number plate for a cheaper vehicle. Other people have had to pay their creditors additional income they receive unexpectedly, like a one-off bonus. 

You have to declare all assets to the insolvency practitioner, who will then decide what you have to sell. However, the insolvency practitioner will be reasonable, for example you are unlikely to need to sell things like a phone and jewellery. 

Money in pension plans isn’t viewed as an asset by your insolvency practitioner. However, if you supplement your income with money from your pension then this is considered part of your monthly income. The insolvency practitioner would assess this when deciding what an affordable monthly payment might be for you. 

If you are unsure about your assets in an individual voluntary arrangement, or are trying to figure out ‘Is an IVA worth it?’ seek professional debt advice today. It might be that other debt solutions are better suited to your situation.

How badly does an IVA affect credit rating?

The lower your rating, the lower your likelihood is of being approved for credit. IVA’s cause your score to drop, however being in debt does this anyway! A low score also means you are offered worse interest rates for things like mortgages. 

An IVA stays on your credit file for six years in total. These 6 years begin from the date of IVA approval, even if you manage to complete the IVA early.

If you do achieve early completion though, the IVA will show on your credit report as ‘complete’, which can make it easier to get credit.

If your IVA debt solution happens to take longer than the planned six years, it will remain on your file and continue to affect your credit rating until you finish it. 

Also, creditors sometimes put a default on your file. A default shows that you broke the agreement you initially had with the creditors, and for this reason can put off future creditors you apply to. 

The good thing is that once your IVA is approved creditors cannot add any more defaults to your record. 

Will an IVA ruin my credit?

An IVA is damaging to your credit file, though many people with debts find they have a low credit score anyway. So, working to resolve your debts is a wise move. An IVA can be a good way of doing this.

In the long-run an IVA provider can help you deal with remaining debt and eventually rebuild your credit file. This is why an IVA is a great way for dealing with certain types of debt. 

Once you receive the certificate of completion, you will be taken off of the insolvency register within three months. 

You should remember, though, that any kind of debt solution weakens your credit score. That’s if your debts haven’t damaged it already. Luckily, once you have finished an IVA you can rebuild it. This increases your chances of approval for credit, for example a loan or hire purchase car. 

worth getting iva

Will my partner suffer if I take an Individual Voluntary Arrangement? 

An IVA is a personal agreement and therefore will not affect your partner. However, if you have to alter your mortgage, for example, this will obviously impact the lives of your loved ones too.

We recommend speaking to a debt adviser and mortgage lender before you pay any IVA fees. It is always best to deal with your debt at the earliest possible date, to avoid interest building up and/or legal action being taken. 

Can I still rent if I have an individual voluntary arrangement?

Understandably, landlords can be reluctant to take on people that have an IVA. This is because they want to be assured that you have control of your finances and can afford your rent each month. 

If you are already in a rental contract then your IVA shouldn’t have any affect. And remember, an IVA is a debt solution, not a problem. So once you finish it your property options will be much more appealing. 

What is the largest amount of debt that can be written off? 

Firstly, no insolvency service will ever be able to write off all of your debts. Most people find that a licensed insolvency practitioner will be able to write off around 60% of your debt. Some people, though, find that this solution can write off up to 90%. 

You could try an online IVA calculator to estimate how much of your debts an IVA might write off. But remember this is only an estimate. The actual amount you can have written off depends on your unique circumstances and the extent of your debt. 

Remember, IVAs are only for unsecured debts.

To decide whether an IVA is worth it, speak to a professional advisor. They can assess your current income, employment status, outgoings, and level of your unsecured debt. They can then give you advice about payments so you are able to make an informed IVA decision. 

worth getting iva

What will my monthly payments look like? 

For an IVA, or protected trust deed for those in Scotland, there is no fixed minimum amount to be paid each month. However, it is rare for minimum payments to be below £80 per month. Creditors are unlikely to accept an IVA proposal with very low monthly payments.

If you can only afford to pay a small amount each month over the five years (or four in Scotland) then it is still worth getting advice. You may be able to cut or reduce spending somewhere, using professional advice.

Alternatively, the advice service can see if there is another solution that might help you. For example you could consider a debt management plan or a debt relief order, instead of an IVA/protected trust deed. 

Consider using a debt calculator to estimate the kind of monthly payments you might need to make to your creditors. Remember to always check the data protection policy of any online advice service or calculator before entering personal details. 

Do IVA debt solutions cost money? 

An individual voluntary arrangement does incur fees. The charges you have to pay for an IVA vary by provider. 

The good thing is that payment for IVA costs, such as the set up and management fees, aren’t demanded upfront. Instead, you ‘pay’ them indirectly: fees are taken off of the total amount of debt repayment the practitioner offers the creditors in the proposal. 

Remember, reliable debt advice also comes at a cost, too. Fees vary depending on provider, however, professional and official debt advice is always better than unreliable free services. 

worth getting iva

What are the advantages of this type of debt solution? 

Whilst an IVA will inevitably damage your credit rating, fixing your debt can enable you to improve it in the long-run. Once your financial situation improves, thanks to the IVA, you are more likely to be accepted for things like a personal loan and credit cards.  

The other key benefits of an IVA are having some of your debt written off and frozen interest. Therefore you have an opportunity to pay off your debt without the amount charged to your bank account building up. 

Furthermore, your creditors won’t be able to take any legal action against you whilst you are in an IVA. Therefore an IVA removes the stress of being in debt, provided your monthly payments are affordable. 

Finally, an IVA can be a logistically easier debt solution. This is because you only have to make one IVA payment each month, rather than many separate payments to all your different creditors. 

What impact will an IVA have on child support?

If you have to pay child support, this is a legal obligation and is unlikely to be paused whilst on an IVA. 

That said, when your practitioner draws up your proposal they will consider this outgoing before presenting the final version to your creditors. They also consider other repayment obligations such as those for student loans. 

As all outgoings are considered before the proposal is presented, the repayment amount due each month is one that you should be able to afford. 

Will I need to sell my home if an IVA is in place?

Normally people in an IVA do not have to sell their home. That said, you may need to remortgage in the final year. 

The remortgage is a way of releasing a lump sum of money, to give as payment to your creditors in the final year of the IVA. Those that find they cannot make one large payment in the fifth year of their IVA often have to extend the agreement to six years. 

If you are struggling with Debt, would you like to speak to a specialist to discuss what options you have?

We work with Money Advisor who is able to help you, if meet the following 2 criteria:

1 – Your level of debt is £2,000 or over

2 – You have at least two creditors (ie two or more companies you owe money to)

If you meet the criteria, and would like some help, you can contact us in one of 2 ways:

  • Option 1 – Call us directly on – 0333 567 1613
  • Option 2 – Leave us your contact details and we will get in touch with you

 

Option 1 – Call directly to book an appointment with a debt management specialist

Our lines are open Monday to Friday – 9:00 to 8:00pm

Option 3 – Leave us your details and we will get in touch

Leave your contact details below and one of the Money Advisor team will give you a call to discuss your needs.

Please note that all calls are undertaken by Money Advisor who help thousands of individuals find solutions to get out of debt and. They can help you understand all the possible options and guide you through the various processes.

Learn More About Debt Management In The UK

Debt Management plans

A debt management plan is a means of helping you solve your debts. It involves negotiating an agreement between you and some or all of your creditors in order to pay off your debts. 

mortgages if you are bankrupt

There is no hard and first rule when it comes to what lenders will accept your mortgage application if you want to get a mortgage after bankruptcy. Mortgage lenders who lend to discharged bankrupts generally consider each unique case individually. 

debt relief orders

Debt relief orders (often abbreviated to DRO) are a method of debt reduction if your debts are more than you can manage and you cannot afford to pay them.

What is an IVA?

An IVA is a kind of debt solution: more specifically, it is a legally binding agreement between you and your creditors to pay back your debts over a particular time period. This article explores the impact of having an IVA and what it could mean for your day to day life.

what is bankruptcy

Bankruptcy is a legal status which has a duration of one year in England and Wales. It can be an option for taking care of debts that you are incapable of paying.

impact of credit rating an IVA

An IVA won’t affect your credit score forever. It will normally only be kept on your credit file for six years in total.  This is because an individual voluntary arrangement usually lasts for five years, and after it ends it will remain on record for one more year.

Article author

James Lloyd

I am the primary writer and author for Help and Advice, having originally helped start the site because I recognised that there was a need for easy to read, free and comprehensive information on the web. I have been able to use my background in finance to produce a number of articles for the site. This is a tool that provides you with practical advice on improving your personal financial health.

Outside of work I am a keen rugby player and used to play up to a semi-professional level before the years of injury finally took their toll.  Now you are more likely to see me in the clubhouse enjoying the game.

Email – [email protected]

Linked in – Connect with me

Frequently Asked Questions

How does an IVA affect your life?

An IVA can have a positive or negative impact on your life. This is why you need to consider whether an IVA is right for you. 

The main benefit once an IVA is in place is that you are protected from your creditors. This means creditors cannot charge interest or take legal action during your IVA, so the amount you need to pay back is fixed. 

What are the negatives of an IVA?

During your IVA your credit rate will fall. It will remain low for a year even after you complete the IVA. 

However, for most people that owe money and qualify for an IVA have a weak credit history anyway. So, in the long run, dealing with your debts using an IVA is a solution to low credit. 

What assets might I have to sell to give my creditors a lump sum? 

In the past people may have to swap expensive cars with an expensive number plate for a cheaper vehicle. Other people have had to pay their creditors additional income they receive unexpectedly, like a one-off bonus. 

You have to declare all assets to the insolvency practitioner, who will then decide what you have to sell. However, the insolvency practitioner will be reasonable, for example you are unlikely to need to sell things like a phone and jewellery. 

How badly does an IVA affect credit rating?

The lower your rating, the lower your likelihood is of being approved for credit. IVA’s cause your score to drop, however being in debt does this anyway! A low score also means you are offered worse interest rates for things like mortgages.

If you are struggling with Debt, would you like to speak to a specialist to discuss what options you have?

We work with Money Advisor who is able to help you, if meet the following 2 criteria:

1 – Your level of debt is £2,000 or over

2 – You have at least two creditors (ie two or more companies you owe money to)

If you meet the criteria, and would like some help, you can contact us in one of 2 ways:

  • Option 1 – Call us directly on – 0333 567 1613
  • Option 2 – Leave us your contact details and we will get in touch with you

 

Option 1 – Call directly to book an appointment with a debt management specialist

Our lines are open Monday to Friday – 9:00 to 8:00pm

Option 3 – Leave us your details and we will get in touch

Leave your contact details below and one of the Money Advisor team will give you a call to discuss your needs.

Please note that all calls are undertaken by Money Advisor who help thousands of individuals find solutions to get out of debt and. They can help you understand all the possible options and guide you through the various processes.

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