What is an IVA agreement?
If you are someone who has multiple debts of a high value then an Individual Voluntary Arrangement might be well suited for you. An Individual Voluntary Arrangement is a debt solution that is designed to aid you with the repayment of your unsecured debts, such as your payday loans and credit card debts. If you take out an Individual Voluntary Arrangement, then you will form an agreement with your creditor to repay a manageable portion of the balance of your debt over an extended period of time (typically around 5-6 years). At the end of the agreement, provided you have adhered to the terms of the arrangement, even if you have not repaid your debts in full, your debts will be written off. If you are someone experiencing financial difficulties and want to avoid declaring bankruptcy, then contact us today on 0800 955 5020, for expert advice about what an Individual Voluntary Arrangement can do for you.
What are the benefits of an IVA?
- Free from debt in 5 years. IVAs are set up to last for a set period of time – usually around 5 to 6 years, after which your debt will be wiped clear.
- Single monthly payments. At the start of your arrangement, you will agree with all of your creditors how much you are able to afford to repay each month. You will then begin making one regular payment each month towards this. In some cases you will be able to make a one-off lump sum payment.
- Interest and charges are frozen once the IVA is approved. Once the IVA is set up, you creditors will not be able to add additional charges or increase the interest on your debt which is covered by the agreement.
- After approval, creditors will no longer be able to take legal action against you and they will lose the power to petition for your bankruptcy.
- Telephone calls from your creditors will cease and they will no longer be able to contact you by letter to demand payment from you.
- The Insolvency Practitioner will take responsibility for your debt repayment. You will delegate responsibility of your financial situation to an Insolvency Practitioner who will be better equipped to produce results and ensure your arrangement is approved.
- You will be able to keep your home. You will not be asked to sell your property as part of the IVA. You may need to re-mortgage your home to help pay your creditors, but this will only happen after the fourth year of your IVA.
- You will retain ownership of your vehicle as long as it worth less than £5000.
- You will not be required to make any further payments to cover the rate of your insolvency practitioner (these can be taken from your monthly payments).
- Begin repairing your credit rating. After you have finalised your arrangement, the opportunity will be there to borrow additional funds and begin to improve your credit rating. You need not worry about being credit blacklisted indefinitely.
- Fixed agreement. Once your creditors agree, they will be legally bound by the agreement and will have to adhere to it. This means that you will never have to pay more than you have agreed with them, and they cannot demand more of you.
- You will have legal protection. Your creditors cannot take you court or take action against you in order to make you pay off your debt faster. This is as long as you act in accordance with the agreement.
- Your job/occupation will not be affected. Whatever you do for a living, your job will not be adversely affected by taking out an IVA. An IVA is a confidential agreement between you and the creditors to whom you owe your debt. Although you will be on the Insolvency Register, you do not need to inform your employers that you are on an IVA.
What are the risks of an IVA?
- An IVA can take longer than bankruptcy. Although there are numerous advantages to an IVA, bankruptcy will often be a quicker process, taking only one year, unless you happen to have a payment order, which can last up to three years.
- It will affect your credit rating. Although you will be able to repair your credit rating after your IVA is finalised, and your credit rating will not be damaged as badly is as it would if you were made bankrupt, you will be unable to borrow money during the course of your IVA.
- You must be disciplined and stick to a regimented payment plan. This can be a positive or a negative. If you fail to adhere to the terms of the agreement made, and continue with your contractual payments, your IVA may fail. The result of this might be that you have to cover the original, full balance of your debt, or possibly facing bankruptcy. However it is possible in some cases to take payment holidays.
- Court costs, fines and student loans can’t be included. There are certain types of debt, namely priority and secured debt which cannot be covered by the IVA.
- If you own a property with equity in it, then you will likely be asked to try to remortgage in the final year of the IVA. Such a remortgage is subject to fair criteria, for example this can only be up to a maximum loan to value of 85%, and the repayments to the remortgage can only be up to 50% of the monthly repayments you make. Your monthly repayments will be reduced in-line with this.
- You must continue paying your rent and your mortgage and all other secured debt payments, or they might be repossessed.
- Your home equity may be at risk. After the fourth year of your agreement you may be required to take out a mortgage on your property in order to help pay off your IVA.
- You will be unable to make any unsecured borrowings. Your credit cards will be destroyed. You can potentially however, take out a new mortgage or change your mortgage provider. You can also use prepaid cards.
- You need £10,000 or more of unsecured debt. If you have less than £10,000 worth of debt then you will not be eligible for an IVA. You will also be required to pay a minimum payment of £120 per month in order to be eligible.
- You must include all of your creditors. You cannot leave your any of your creditors from the IVA agreement, and you will be unable to make separate arrangements which each creditor – they must all be part of the same agreement. This reduces for your flexibility with repayments.
- You may have to repay more of your debt than you would with, for example, bankruptcy. With an IVA you may end up paying back between 20% and 50% of your overall debt, whereas with bankruptcy, you may pay less than this or even nothing.
What criteria do I have to meet to qualify for an Individual Voluntary Arrangement?
To be suitable for an IVA it is ideal for you to be in full-time employment so that you have a sustainable income with which to use to pay back your debt, however it is not essential. You may have other forms of income which you can use to pay off your debt, for example, benefits or a partner who is willing to contribute to your repayments. There are many IVA applications accepted each year from those who are not in full-time employment.
It is necessary for you to have a minimum of £100 – £120 of disposable income each month, with which to repay your creditors through the IVA. This should be after all your house hold expenses, bills, and payments toward secured debts have been covered.
Resident of England, Wales, or Northern Ireland
An IVA will not be available to you if you live in Scotland, you must be a resident of England, Wales, or Northern Ireland. If you are a resident of Scotland, then you can benefit from a similar debt solution, called a Trust Deed. A Trust Deed works in a similar way to an IVA.
As IVAs are designed for those who have exhausted other more conventional methods for repaying their debt, it is generally assumed that you do not possess a large degree of valuable assets. For example your car should be below the value of £5000.
Number of creditors
IVAs are designed for those who have 2-3 or more creditors to whom they owe money. If you have less than three creditors, this does not necessarily mean that you will not be accepted for an IVA. There is no minimum in this respect, legally speaking, but if you only have one creditor, it is unlikely that an
will be a viable option for you.
Amount of your debt
In order to be suitable for an IVA the amount of debt you owe will need to be a minimum of £10,000 – £15,000 worth of unsecured debt. However, each circumstance is assessed on its own merits, and it is possible for be accepted for a lower amount of debt.
Which debts can be included within an Individual Voluntary Arrangment?
You can, and must, include all of your unsecured debts into your IVA. You cannot leave any of your unsecured debts out of the IVA, as all your creditors must be equal within the IVA agreement. Examples of unsecured debts (also known as non-priority debts) include:
- Credit card debt/ charge card debt/ store card debt
- Personal loan debt
- Bank loans and building society overdrafts and loans
- County Court Judgements
- Payday loans/ doorstep loans/ credit unions
- Arrears that have come from utility suppliers, electricity, gas, and water
- Any unsecured debt that has a County Court Judgement or an attachment of earnings
- Any debt that were secured against one of your assets in the past, which has now be repossessed (e.g. property shortfall)
- Arrears that have come from service providers (e.g. mobile phones, digita TV)
- HMRC VAT, self assessed tax, PAYE, and National Insurance & Gas, electricity, water, TV licence, and telephone payments (these are some of the few priority debts which you can include in an IVA)
So which debts cannot be included within an IVA?
Priority debts cannot be included in your IVA. These are the debts which cover the cost of your living. Payment for such debts will need to be factored into your monthly budget and paid for before payments to your creditors are made via the IVA.
The following are examples of priority debts:
- Rent and mortgage payments
- Secured loans
- Child maintenance
- Student loans
- Council Tax
- Maintenance arrears which have been requested by the court
- Magistrate fines of the court
- Utility bills
- Joint debts – if you have debts for which another party is also responsible, your partner for example, then you may not be able to include these within your IVA.
How will an IVA affect my creditors?
Will my creditors want to accept my proposal for an IVA?
Depending on your current financial situation, you may be unable to realistically repay your creditors the full sum of money which you owe them. Your creditors will be aware of this, and will also be aware that an IVA will give them a guarantee that they will at least receive at least a portion of your debt owed to them. Because an IVA is a legal agreement for you to repay a certain amount of your debt, it gives your creditors a certain degree of security, and therefore may well seem an attractive proposition to them.
Once my IVA has been approved, will my creditors be able to demand higher payments?
Your creditors will not be able to change the terms of your agreement. Once it has been agreed that you will repay a certain amount each month, your creditors will not be able to increase this amount or change any other terms of the agreement. Your financial circumstances will be assessed each at the end of each year, and if there are been major changes to your situation, then the agreement can be reviewed, however, if there is no significant change to your finances, then your payments will not change.
Is it possible for me to arrange my IVA with my creditors directly, on my own?
In order to complete the IVA agreement, it is essential that you get advice from an Insolvency Practitioner (IP). An IP will make sure that both you and your creditors receive a fair deal, and are qualified to do so. You cannot complete the IVA without an IP.
What happens if not all my creditors agree to the IVA
For your IVA proposal to be successful, the amount of debt you owe to the creditors who have agreed must add up to at least 75% of your total debt. If this happens, then the remaining creditors who have not agreed to the IVA will have no choice but to agree. To give an example, if you owe £20,000 to 5 creditors, and 2 of those creditors, to whom you owe a total sum of £15,000 to, agree to the IVA, then the remaining 3 creditors will be bound by that agreement.
What will happen if the creditors that agree are owed less than 75% of my total debt?
If it is not possible to convince enough of your creditors to agree to the IVA, and they are unwilling to change their minds, then your only option will be to consider an alternative debt solution. An IVA may have been the most financially beneficial option for you, but there other options which may also be viable for you, like a debt management plan, or even bankruptcy. If your application has been rejected and you are unsure of the course of action which is right for you, feel free to speak to an expert advisor on 0800 955 5020.
Will my interest rates be frozen?
By law, your creditors will have to freeze your interest rates for the length of the agreement once the IVA is approved.
Will my creditors still contact me or make demands of me?
Once your IVA is approved your creditors will stop contacting you as part of the agreement. You will have an Insolvency Practitioner who will act as a mediator between the two of you, and if your creditors do happen to continue contacting you directly to make demands, then you can speak to your IP about this and have the situation resolved.
Do I have to meet with my creditors in order to set up the IVA
Once you have begun applying for your IVA with your Insolvency Practitioner, you are advised to attend the creditor’s meeting in order to represent yourself. You can attend the meeting via a conference call if this is more convenient for you. At this meeting, your creditors will be able to look over the proposal and at this point making any requests for changes, and vote on whether or not to accept the agreement.
What are the fees, charges, and monthly payments with an IVA?
Are there IVA fees? And who pays them?
You will not be required to pay any fees directly for the IVA application. The way an IVA works, the fees for the services of the Insolvency Practitioner (who is essential for the process) are covered by the funds which are distributed to your creditors .
How much will my monthly payments be to my creditors?
The amount which you pay each month to repay your debt to your creditors will be calculated based on your income, your expenses, and other factors, by your Insolvency Practitioner. Your IP will strive to create an agreement which is financially viable for you, so that you can comfortably meet your monthly payments. It is important that you are able to meet all of your priority debts, which are paid outside of the IVA, like your mortgage and utility bills.
Will I have to live on a tight budget?
This will depend on your individual financial situation. With the help of your Insolvency Practitioner, you should aim to prioritise your expenses, and take care of those which are most essential to your day to day living. This way you should be able to maintain your monthly payments will also maintaining a relatively comfortable life style.
What happens if my financial circumstances change?
If your financial situation improves significantly, then you may be asked to increase the size of your monthly payments. Your Insolvency Practitioner will review your financial situation on a yearly basis, and it is at this time that changes to your monthly payments may be made. Say for example you inherit a large sum of money, or receive a pay-rise at work, then you may be asked to pay more towards your IVA each month (this is as part of the windfall clause). You should let your IP know about your increased income as soon as possible (not doing so will be a breach of your IVA agreement). Regarding commissions and bonuses, in the case where your IVA was arranged after the 1st of July 2012, it may include a term which states that any bonuses or over-time payment you receive from work only has to be reported to your IP if it is a greater sum than 10% of your pay. If you financial situation has deteriorated since you agreed to the IVA, then you will have the opportunity to decrease your monthly payments. Say for example your benefits have been cut, you have lost a tenant, or you have taken a pay cut at work, then the loss of income you suffer will translate to a decreased monthly payment that is in-line with this loss. If there is no significant change to your financial circumstances, then there will be no changes to your monthly payments. Other instances where you should inform your IP of your change include, changing your job, debts that you have forgotten about, and moving home.
What happens if I am suddenly unable to make any payments to my IVA
If your financial situation changes suddenly, then you can let your IP know right away, and steps can be taken to reduce your payments, implement a payment break of up to 6 months, without the permission of your creditors, or cancel your IVA completely.
What does it mean when the IVA fails? And what happens if my IVA fails?
In cases where you are unable to maintain your monthly payments in-line with the IVA agreement, your IVA may be deemed to have failed. Although your Insolvency Practitioner can take steps to keep the agreement running, by negotiating temporarily or long term reduced payments with your creditors, this can only be done for so long. Eventually your IP will have to draw a line and accept that the IVA has failed. In the event that your IVA fails, your IP will contact your creditors and inform them of this. Once this happens, you will cease to be protected by the terms of the agreement. Your creditors will be able to chase you for further payments. You will have the option at this point to propose another Individual Voluntary Arrangement, declare bankruptcy, or another debt solution, such as a Debt Management Plan.
What is an Insolvency Practitioner?
Insolvency Practitioners explained
An Insolvency Practitioner (IP) is a fully qualified debt professional who is tasked to help organise and plan individual and company’s debt repayment. IPs often have backgrounds as a solicitor or an accountant, and as such are best suited to arrange your Individual Voluntary Arrangement, both making sure that it is legally sound, and financially beneficial for you.
Do I have to solicit the help of an IP in order to get an IVA?
Yes, you cannot get an IVA without the advice and help of an Insolvency Practitioner. An IVA is a complex legal agreement; designed to both benefit you and your creditors, and requires expertise and experience in the management and repayment of debt in order to achieve this result.
What will my Insolvency Practitioner do for me?
- Assess whether or not an IVA is the best debt solution for you. An IVA will not always be the best solution for everyone; in some cases bankruptcy or a debt management plan will more ideal. An IP can discuss the advantages and disadvantages of an IVA with you, to make sure that you understand the full extent of the risks involved, allowing you to make an informed decision. By looking at your individual circumstances, an IP can give you their professional opinion on how you credit rating, or your home will be affected by you taking out an IVA. If you feel as though you would like some advice on whether or not an IVA may be the best solution for your individual set of circumstances, call 0800 955 5020 to speak to an expert now.
- Help organise lower monthly payments. Your IP will look over your budget, your income, and your expenses, to work out how much you can afford to pay each month after your household and other essentials are taken care of. Your monthly payments need to be set up so that you have enough money left over at the end of each month to live relatively comfortably, while still being mutually beneficial for your creditors; and doing so requires very accurate calculations and thoughtful negotiations on the part of your IP.
- Speak with your lenders in order to propose the IVA agreement. Your IP will meet with your lenders and will explain the terms of the agreement to them.
- Provide you with support and guidance throughout the course of your IVA. During your IVA your financial situation may go through many changes, and as such, the your payments may have to alter. If your payments need to be temporarily paused for up to 6 months, your IP will handle this for you. If you decide to move home, or you lose your job, you IP will help to maintain your IVA.
Who does the IP represent, me or my creditors?
In a sense, the IP represents both you and your creditors. The IP will act as a mediator, making sure that all parties adhere to the terms of the agreement. In this way, your IP will protect you legally, but at the same time guide you to make sure that you do not break the terms of the contract. The IP will make sure that the agreement is fair for you, and also for you creditors.
Do I need to meet my IP in person?
It is not essential for you to meet your IP in person. It is possible to make all the necessary arrangements via phone and email, although it is advisable that you attend the meeting of creditors, where the agreement will be proposed and agreed upon.
What do I need to prepare in order to meet with/ speak to my IP?
- Evidence of you income, for example payslips, letters relating to your benefits, or you bank statements. These will be used to help your IP determine who much your monthly payments will be.
- Evidence of any savings you may have, like bank statements.
- Details of any assets you may possess, like your vehicle and your home.
- Information on your mortgage, or your rent.
- What you believe your budget to be, including your total income and expenses. Remember that it is important to be as honest and accurate as possible to make sure that you end up with an agreement that you can stick to.
Are Insolvency Practitioners regulated?
All IPs are regulated by either, the Department of Trade and Industry, the Association of Chartered Accountants, or the Insolvency Practitioners Association. The regulating bodies ensure that the IP will act according the law and work to a high professional standard.
What is the IVA process?
Step 1: Speak to a debt advisor
To begin, you will start by speaking to a debt advisor who will confirm whether or not an IVA is the right solutions for your current financial situation. There are many debt solutions available, and it is important to select the one that best fits your individual circumstances. Your debt advisor will help you to figure how much you will likely be able to repay your creditors, and therefore how likely it is that your IVA application will be accepted. In the event that your situation is right for an IVA, the advisor will write up a statement of affairs for you, to be given to your Insolvency Practitioner. If you would like to speak to an advisory now, call 0800 955 5020 to begin the process.
Step 2: Your Insolvency Practitioner will draft your proposal
Your IP will assess your financial situation and calculate the optimal amount of money you can afford to pay each month to your creditors. This figure will be formulated with your financial well-being in mind, to try to help you maintain your living essentials from month to month. You will be required to give some evidence of your income and your expenses, so that you IP can make an accurate assessment of your financial situation. The interests of your creditors will also be kept in mind, as it is important for the IVA to be fair and balanced if it is going to be successful. Your IP will outline all other possible solutions to you, like bankruptcy, before their plan is drafted into a proposal to be sent to your creditors for acceptance.
Step 3: Your creditors will accept, decline, or request amendments to the proposal
Your creditors will have the opportunity to modify the proposal drawn up by your IP. If there have been modifications, for example, a request for an increase the monthly payments that your IP has calculated, then your IP will give you the details of these and discuss the implications with you.
Step 4: A creditors meeting will be held
This meeting is another opportunity for your creditors to discuss the proposal, and make a formal decision on whether or not to accept the proposal. For the proposal to be accepted, the value of the debt owed to the accepting creditors must add up to 75% or more of your total debt. For example, if you owe £100,000 worth of debt, then the debt which is owed to the creditors who have accepted your proposal must add up to £75,000 or more. Once your creditors have accepted the proposal, the IVA agreement becomes legally binding. In the event that your creditors reject the proposal, you will have the opportunity to amend your proposal with your IP and reapply the proposal.
Step 5: All creditors and the court are informed of the IVA agreement
All parties involved and the courts, will be formally informed of the IVA agreement. Your IP will be put in charge of mediating between the parties involved, supervising the arrangement, and supervising the distribution of any assets and repayments.
Step 6: You will begin making payments
As the agreement is in full effect, you can begin making payments according to the terms of the IVA. This will be for a period of time between 5 and 6 years.
Step 7: You become free from your debt
Once you have fulfilled the terms of your agreement and kept up with your payments for the 5 -6 year period, you will be free from your debt, with any outstanding debt being written off on the completion of your IVA.
Frequently Asked Questions
How do I know if an IVA is the right debt solution for me?
Are Individual Voluntary Arrangements the right solution for me?
By acquiring an IVA you will be able to reduce the amount you pay every month to an affordable level, which can help you retake control of your financial situation. You will also be protected from interest and late charges being added to your debt and you will be given years to pay it back, which is great for making your debt manageable again. At the end of the IVA, any outstanding unsecured debt will be written off. However it is the time span of an Individual Voluntary Arrangement that makes it unattractive as a debt solution. Once you have agreed to one, you will be legally bound for at least 5 years and during this time you will have to focus your finances on debt repayment. Bankruptcy can often be finalised in a year, so if you are someone who is struggling financially, but would like a swift resolution to the problem, then an Individual Voluntary Arrangement is not for you. Also if you are someone who is concerned about their credit rating and future ability to acquire credit, then an Individual Voluntary Arrangement is not for you. A record of it will be kept on your file for up to 7 years and this will make it severely difficult to acquire any new credit during this time. You might also have to remortgage your property at the back end of the arrangement which can be inconvenient. However, if you desire to avoid Bankruptcy and have tried other debt solutions to no avail, then an Individual Voluntary Arrangement might be a good way to make your debt manageable. A family man might consider this, as keeping your house is a massive benefit of this course of action. For advice about whether you are suitable for an Individual Voluntary Arrangement, contact our debt helpline today on 0800 955 5020.