An IVA (individual voluntary arrangement) is a debt solution that provides UK residence (excluding Scotland) potential relief on their debts if they qualify for the programme.
What is an IVA?
An IVA is a debt relief programme that provides an alternative to bankruptcy and other debt-relief programmes (Debt Management Plan & Debt Relief Order). An IVA is a legal binding agreement that allows the individual taking it out to pay back their creditors in a payment plan agreed by the creditors and an IP (Insolvency Practitioner). The IP represents the individual with the outstanding debts and works on negotiating the plan with the creditors and conducts the due diligence on the individual looking to take out the plan.
An IVA allows for a more manageable payment plan to be put in place, as the plan consists of one payment to the IP, at a rate the individual can afford – the IP then splits the unsecured debts out to the creditors. Having an IVA in place means that interest and costs are frozen and the IP will negotiate a reduced debt. An IVA will usually last for up to 5 years.
An IVA is designed to make it easier to pay back your creditors than it would be with bankruptcy. As this agreed with your creditors, there is more control in your finances. It is important to understand that once you enter an IVA your credit score will be impacted for six years and your name will be placed on the public Registers of Insolvencies for the duration of the plan.
An IVA is available to the residence in England, Wales and Northern Ireland. The Scottish equivalent is called a Trust Deed and works in a similar manner, with some slight differences.
What criteria meets an IVA?
All cases are assessed individually and require an insolvency expert to determine what debt relief programme.
For an IVA the professional will look at the following and require that all the following is met.
– Debt levels are over £6,000.
– England, Wales or Northern Ireland residence.
– 2+ creditors with unsecured debts.
– Minimum disposable income of £70+ after all costs are taken into consideration.
How does an IVA work?
Once the insolvency professional has determined that an IVA is the best debt relief option they can begin the process of collecting all the information required. They will work with the individual to collect bank statements and various other bits of documents before handing the case over to the IP.
The IP will then be able to begin due diligence and drawing up an agreement with the creditors. The IP is responsible for conducting the IV and making sure each party upholds their end of the bargain. For the IVA to be legally binding it has to be supported by at least 75% of unsecured debt value outstanding with the creditors.
Once the repayments are agreed the monthly payment will be paid into the IP who will distribute the debts accordingly.
The creditor, even those who voted against the IVA can’t take any further legal action for the unpaid debts and the creditors are barred from charging any more interest or fees.
The IVA is now in place and needs to be followed according to the agreement outlined by the IP.
An IVA normally lasts for 5 years, with a potential to extend for a further 12 months if there is an equity clause.
What debts CAN be used in an IVA?
✓ Credit cards
✓ Personal loans
✓ Old utility/phone bills
✓ Payday Loans
✓ Previous years council tax (subject to area)
✓ Store cards
What debts CAN’T be used in an IVA?
✘ Other secured loans
✘ Hire purchase agreements
✘ TV license arrears
✘ Student loans
✘ Child support arrears
✘ Debts incurred through fraud
✘ Court fines
✘ Social fund loans
What are the advantages of an IVA?
There are a number of a advantages of an IVA
1. Debt will be written off (after a repayment period)
When an IVA is started it is due to run a maximum of 5 years or 60 months and when this period is complete, your debt will be written off.
2. Your creditors will stop chasing you
Once entered into an IVA creditors will be forced to stop chasing outstanding debts and will expect to adhere to the rules outlined by the IP.
3. A convenient repayment plan
Rather than paying multiple creditors, different amounts on different days.
What are the disadvantages of an IVA?
1. An IVA will affect your credit rating
As soon as an IVA is entered your credit score will be affected and will have an impact on your score for six years
2. Not everybody qualifies for an IVA
Not all people in debt qualify for an IVA although there are other debt relief solutions available.