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.