Individual Voluntary Arrangements (IVA) are available to those living in England, Wales and Northern Ireland. If you are outside of these areas, please use this article as information only, and seek advice from a local professional.
If you are struggling with debt and have found yourself in a tough financial position, then it is likely you have heard about Individual Voluntary Arrangements (IVAs).
It can be a hard thing to accept, but as we discussed in my previous article, I’ve been there and done that so I feel your pain.
Over the course of a few articles covering debt management and your options, we have gone through some of the possibilities for getting back in control of your finances. We started with a brief overview of all the options, then delved more into depth into What is a Debt Management Plan (DMP)?
In this article, we are going to look at Individual Voluntary Arrangements (IVAs). What they are, how you get one, what the process is and how it may affect your future.
I will emphasize now that this article is for information only. ALWAYS seek professional advice before deciding on any of these options.
When you speak to the professionals, they will help to identify the best course of action for you.
Any debt management solution you take will always affect your credit rating/score, therefore, ensure you get the best advice possible before committing to anything.
What is an IVA?
There are many definitions out there, but STEPCHANGE state that:
An individual voluntary arrangement (IVA) is a formal agreement between you and your creditors that can help you repay your debts at an affordable amount.STEPCHANGE
Essentially, an IVA is a step up from a Debt Management Plan (DMP) and is an alternative to those wishing to avoid bankruptcy.
They are legally binding financial arrangements between you and your Creditors.
This is not something you can put in place yourself. If you believe an IVA may be the best option for you, then you will require an Insolvency Practitioner to act on your behalf.
An IVA is generally paid over a 60 or 72-month term however it is possible to pay an IVA with a one-off payment, depending on your financial position.
If you would like to get an idea of how much you would be paying back and over what term, always speak to the professionals. For a quick look at how it may help you, you can use the IVA calculator at ClearDebt to get an idea.
Is an IVA the right choice?
There are a few criteria you will have to meet in order to be considered for an IVA. These are:
- You have a regular income that can cover the cost of living and the cost of the IVA
- You have a lump sum of money available now or in the future (must be guaranteed)
IVAs should be considered very carefully as they can impact on you, your work and your financial future. Be sure to get advice.
Does an IVA cost me?
Short answer, yes.
In order to set up and maintain an IVA, you require an Insolvency Practitioner (IP).
IPs do charge a monthly fee for maintaining your IVA and making the payments to your creditors.
You should not have to pay any upfront charges (although some companies do charge setup fees). If a company tries to charge you a consultation fee, my advice is to speak to another company.
Ultimately, a monthly fee will be taken out fo your payment, however, you do not want to make the situation worse by paying unreasonable charges.
Although many would be tempted to shop around for the cheapest option, ensure you stick with a good reputable company.
An IVA is a long term commitment and as such, you really want someone who you can trust and who is available should any questions or concerns arise.
What are the Pros of an IVA?
If you are struggling, then an IVA may be an option for you. There are many benefits to an IVA, these are listed below.
- An IVA is a safe way to avoid bankruptcy and repossessions if you are struggling with your repayments.
- If you are finding that you cannot make all of your payments each month, and are juggling debt then an IVA enables you to get your debts under control.
- Having someone set up and maintain the IVA on your behalf relieves a lot of the stress involved with constantly speaking to creditors and/or juggling bills.
- On successful setup of your IVA, you will have a fixed monthly payment and a fixed term. This allows you to budget and concentrate on living, rather than worrying about your debts.
- You can see when you are going to finish. As much as you should never get ahead of yourself and always ensure your payments are made, being able to track your end date gives you a goal and something to aim for.
- You are likely to only be paying back a percentage of your overall debt. Once this has been agreed in the terms of your IVA, your creditors will not be chasing more, unless you default on your IVA.
What are the Cons of an IVA?
Like any arrangement in relation to debt management, an IVA does have some negative effects. This is one of the main reasons why you should always seek advice before committing to one. Here is a list of the downsides to an IVA and why they should only be taken as a last resort if possible.
- Creditors are not obliged to agree to the terms of an IVA.
- Although your monthly payments will be affordable, you will find that money is tight for the duration fo your IVA.
- It will show on your Credit Report for 6 years. It does not matter how long it takes for you to pay it off, it will affect your credit score.
- Although you may still be able to attain credit during this time, it will be minimal and all efforts need to be in reducing debt, not increasing it.
- You will pay fees. These will be worked into the terms of the IVA and will form part of your monthly payments.
- Your IVA will be listed on the Individual Insolvency Register, reducing the prospects of attaining credit until your IVA has cleared from your Credit Report.
- As an IVA is a form of insolvency, it could affect your job. Ensure you check your contract for any terms, If you have any form of security clearance, be prepared for the possibility of losing it.
- It is a very long term commitment. You need to ensure that you understand what you are committing to prior to accepting the terms.
- If your IVA fails, there is a possibility of Bankruptcy proceeding being brought against you.
What is the process?
Step 1 – Get advice
The first step is to speak to a Debt Management professional and obtain some free and impartial advice.
As you will know if you have read my other articles, I will always recommend STEPCHANGE. There are many others out there and a quick search will show the best.
I do and will always recommend debt relief charities. The main reason being they will give you free and impartial advice, they are never trying to sell you anything. To me, that gives me great peace of mind that they will help me pick the best option.
Once you have had some advice and have had a chat about your debt and current financial position, you will be advised if an IVA is the best course of action and put in touch with an Insolvency Practitioner (IP).
Step 2 – Finding an IP
You will generally be referred to an IP from the debt management company you speak to. If you would like to shop around, you can find Insolvency Practitioners in your area here.
Step 3 – Terms of your IVA
In conjunction with your IP, you will go through all of your income, expenditure, and debts. Together, you will do this in detail, enabling your IP to formulate the terms of your IVA. This will include how much you can afford to pay every month and how long you will be paying for.
This is where you may find that your IP is applying for some of your debts to be written off.
This is totally out of your control and will be purely based on your finances.
It is, however, standard that the interest on any debts you are paying back is frozen. This, like the terms of the IVA is to the discretion of the creditors, they are not obliged to accept.
Once the terms of your IVA have been set, your IP will liaise with and propose the terms to your creditors. if more than 75% of them agree, your IVA will be set up.
Step 4 – Paying your IVA
Once your IVA has been set up, you will be making regular fixed payments to your IP. They will then be paying your creditors directly, stopping them from chasing you or sending you demands.
It cannot be understated how important it is to keep up with your IVA payments.
If you find yourself struggling to keep up, or if your situation changes then get in touch with your IP as soon as possible. They can generally help, although any missed payments will ordinarily be added on to the end of your IVA, extending the overall term.
Entering into an IVA is not something to do on a whim, and certainly not something you can do half-heartedly.
An IVA is a huge commitment so be sure you understand everything involved before you sign the terms.
Although they may sound daunting, they do have their place. An IVA is a real alternative to Bankruptcy, so do not be scared of one.
The final point and one I have made a few times is to always seek professional advice.
Blogs are great and I hope this has given you an idea and a starting point, however, speak to the professionals. Only they can delve into depth and see if this is the right option for you.
As always, thank you for your time and I hope you got some useful information out of this post.