This page was last updated on 1 July 2022.
What is an IVA?
If you are considering whether IVA debt help would be suitable for you, you would likely benefit from some clear, understandable debt advice.
You may have heard about bankruptcy and Debt Relief Orders but this article will offer advice on IVAs: voluntary arrangements that can help you pay off much of the unsecured debt that you owe.
This article includes a lot of useful IVA advice, for example how to set up an IVA, what the arrangement involves and how it will affect your finances.
Topics that you will find covered on this page
You can listen to an audio recording of this page below.
What is an IVA?
Your very first question is most likely ‘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 debt solution, which is regulated by the financial expert, prevents the creditors to whom you owe money from taking legal action against you.
You can get an individual voluntary arrangement IVA in England, Wales but not Scotland.
What does IVA stand for?
IVA is an abbreviation for an individual voluntary arrangement IVA.
Who sets up an IVA?
It is set up by a qualified professional called an insolvency practitioner. An insolvency practitioner is a lawyer or an accountant.
Insolvency practitioners will charge you fees for their work subject to the amount of debt that you pay back through the IVA.
Here is a short video explaining what an IVA is.
Is an IVA a legally binding agreement?
It is indeed a legally binding agreement. The fact that it is a legally binding agreement is derived from the fact that it is approved by the court.
This legal status also means that your creditors are obliged to uphold its terms.
How do I apply for an IVA?
Before committing to the IVA, an insolvency practitioner (IP) ought to make you aware of the options that are available to you and provide you with a leaflet about whether one is right for you. You should be aware of the consequences that the IVA may have on your financial situation and daily life.
While you are waiting for the IVA to be authorised and regulated, and regulated, your insolvency practitioner may apply to the court for an interim order to prevent your creditors from taking legal action against you to make you pay off the debt that you owe.
Your IP will then talk you through your income, outgoings and assets and how they will be implicated if you get an IVA. After this, a proposal for the IVA will be drawn up which can then be voted on and possibly modified by your creditors (see below).
What happens after I have submitted an IVA proposal?
After your IVA proposal has been finalised, your insolvency practitioner will organise a meeting with your creditors. While the location for this meeting is usually at the offices of the insolvency practitioners association, you can also join the meeting online via a software like Skype or Zoom in order to represent your own interests.
The purpose of the meeting is to give creditors a chance to look at the IVA proposal and to decide whether they would be willing to accept it or not.
After reviewing the IVA, the creditors will vote in favour of or against the individual voluntary arrangement.
How likely is it that the creditors will accept the IVA?
Many creditors have voluntarily agreed to follow a guideline called the IVA protocol. This has been drawn up to ensure that processes of individual voluntary arrangements are clear and fair to the individual who has signed up for the IVA.
The protocol details a standard approach to the way income and expenditure within the IVA should be evaluated, how equity in the home should be addressed and the terms and conditions in the IVA.
The protocol applies to all straightforward consumer IVAs where the individual concerned has at least three debts with two or more creditors. The individual must also have a regular income for this code of practice to be relevant.
It is likely that creditors will accept a proposal that has been written up under the regulations of the protocol. It is unlikely that they will demand any unnecessary changes.
Can creditors change the IVA without my permission?
When the time comes to review your IVA, creditors can suggest and vote on changes to the submitted version amongst themselves. But these changes will not be incorporated without your consent: you have to agree to them yourself.
Is it necessary for all creditors to agree to the IVA?
In order for an IVA to be accepted, it is not necessary for all creditors to agree to it. Rather, the amount of say that a creditor has in whether the IVA goes ahead depends on what percentage of the debt is owed to them.
If one creditor is owed 30% of the value of the debts owed, their vote amounts to 30% of the total vote. In order for an IVA to be accepted, 75 per cent (by value) of the voting creditors, or those that are represented at the meeting, have to be in favour of it.
How does an IVA affect credit rating?
You may be wondering how an IVA will affect your credit score. If you choose to get one, it will be included in your credit report with the ultimate effect of reducing your credit score. A lower score means you may struggle to borrow money.
Is an IVA worth it?
If you owe money and have debts to pay, you may not qualify for a voluntary arrangement with creditors. If you owe money, at least 75% of the debts that you owe need to be included in the IVA.
Furthermore, this is not one of those universal debt solutions because some debts are not applicable such as secured debts and fines.
One thing to remember is that individual voluntary agreements mean that you will have to pay the debt adviser (from an insolvency practitioners association) a fee, which can total around £5000. However, some practitioners will include this in the IVA.
How does an IVA work?
An IVA is a form of voluntary insolvency. You determine a feasible repayment plan with an insolvency practitioner.
The plan requires the consent of your creditors and should be based on what you are realistically capable of paying. IVAs typically have a duration of five or six years if you are making monthly payments.
If the payments you make are not enough to pay off all of your debt by the end of the IVA, you will not have to pay the rest.
After the end of the IVA agreement, your name will be removed from the individual insolvency register after three months.
How does an IVA affect my ability to get a mortgage?
Having an IVA does not automatically mean that your mortgage application will be rejected: it is not a black and white issue in that sense. However, it might affect the terms of your mortgage.
Your chances of becoming a homeowner are undoubtedly affected by your credit score. Mortgage lenders that see an IVA on your credit report will know that you have some experience with financial difficulty, but they will also see that you took steps to make amends by applying for an IVA.
In the UK, your credit history is six years long. If, after your IVA, the rest of the six years of history is healthy, then you have a good chance of securing a decent rate and mortgage deal.
Where can I get debt advice about IVAs?
Before undertaking any major decision regarding the clearing of debt, it is worth seeking debt advice from a trustworthy source. This is also true of IVAs.
It would be a wise idea to seek debt advice from multiple sources. If you are in need of debt advice, you can consult Citizens Advice, Stepchange or the national debtline.
How do I find an insolvency practitioner?
If you think an individual voluntary arrangement is right for you, you may be looking for some advice regarding how to find a debt adviser.
One option is to go to a debt management company. However, this is likely to be an expensive choice as such companies charge an additional fee that is separate from the practitioner’s fees.
It is not necessary to go to a debt management company. You can find an insolvency practitioner on your own by going to the GOV.UK website as well as other helpful advice relating to debt.
What kinds of debt is an IVA suitable for?
Some debts cannot be added to your IVA register. These include debts relating to child support, student loans.
However, any national insurance that you tell us about in the year your IVA is agreed on by creditors can be included.
Will an IVA help me become debt free?
A lot of people want to know exactly how an individual voluntary arrangement will affect their life and what it is a solution for. If you qualify for an IVA, it can have a considerable positive impact such as reduced pressure from creditors and lower regular payments.
It can be an excellent solution in terms of becoming debt free because up to ninety percent of your unsecured debt can be written off, which is evidently a large amount.
Unsecured debt is the kind where money has been lent to you without there being a contract enabling the lender to take any of your possessions if you fail to repay the debt.
An iva insolvency is also one of more flexible debt solutions because there is no limit to the amount of debt that can be included in it. Also, when the agreement ends, any remaining balances should be written off so it is a great debt solution when you have reached that period of time.
How often will I have to make payments to pay off my debts?
Although a lump sum might also be used, monthly payments are the typical set up for an IVA for debt. However, the amount included in the monthly payments will depend on the specificities of your financial situation.
In one sense, there will be less pressure on your finances as your creditors will have consented to receiving a lower amount back so that insolvency practitioner can be paid.
After an examination of your finances, the amount of money that you can afford to pay back each month is calculated in consideration of two factors:
- Firstly, the essential cost of living is taken into account and subtracted from your income. This encompasses food, rent, clothes and the cost of your commute (for example, petrol costs).
- Secondly, any arrears accrued before the IVA are calculated and subtracted. One example of this could be Council Tax arrears.
The whole point of this calculation is to demonstrate the amount of money that is available to offer your creditors once essential outgoings have been accounted for.
Even if you originally agreed to pay your creditors a higher monthly sum, under an IVA, you will never be asked to pay a greater amount of money than what the calculation demonstrates you can afford.
What is the difference between an IVA and Debt Relief Order?
After a successful application for a debt relief order (DRO), you are made exempt from repaying certain debts for a set duration. Typically, after 12 months, your debts are wiped away altogether so you don’t have to pay them.
A DRO would be applicable to you if you have low levels of debt (below £20,000) and very few valuable assets. You also have to have lived in England Wales in the last three years.
If you are in the middle of an IVA scheme, it will not be possible for you to obtain a DRO.
Will I be able to get a new credit card if I have an IVA?
While you have an IVA, there are rules concerning not taking out any more credit (borrowing more money). New credit cards are something that would have to be approved by your IP and there is no guarantee that they will give you permission as these often defeat the point of IVAs.
Ultimately IVAs are a solution to clear one’s debts and it’s important to focus on this end goal.
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.