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Is an IVA suitable for me?

Whether or not an Individual Voluntary Arrangement (IVA) is right for you depends on your circumstances – we’ve created a guide to help you decide whether an IVA is the right debt solution for you.

An Individual Voluntary Arrangement (IVA) is a popular debt solution that can help to deal with unsecured debts and restore control of your finances. But is an IVA right for you? 

Many people enter into an IVA because they have a strong desire to repay the money they owe, but simply cannot afford to do so at the rate expected by their creditors.

Entering an IVA provides them with the opportunity to repay as much as they can afford for a fixed period, without the threat of legal action being brought against them.

At the end of the IVA, the debts are considered ‘satisfied’ and any outstanding balances still remaining after the successful completion of the IVA must be written-off by the creditors under the terms of the agreement.

In most circumstances, an IVA will allow a large percentage of the debt to be written-off, yet still, provide the applicant with a sense of achievement rather than one of failure. 

Factors to consider

Take a look at some of the factors to consider, such as how much debt you have, whether you’re eligible for an IVA, and whether you could write off some of your debt with an IVA.

An IVA might be a good idea if the following applies to your circumstances:

  • You want to write off some of your debts
  • You owe debts to multiple creditors
  • You’re unable to pay the contractual amounts to your debts currently, but could afford a monthly repayment

Benefits of an IVA

Some benefits of an IVA are:

  • It’s legally binding – this means your creditors have to stick to it and they can’t chase you for the debt once the IVA is in place
  • It’s time-limited and you only have to repay while the IVA’s in place – usually 5 or 6 years
  • Creditors usually accept you’ll only pay part of the debt

Is An IVA Right For You?

Here are some of the ways you can tell if an IVA is the best way to deal with your creditors and your unsecured debts:

I want to write off my debts

If you can’t see a way to realistically pay what you owe in full over a reasonable timeframe, an IVA may be the best option for you.

The ability to write off unsecured debt is one of the most attractive reasons for choosing an IVA. Although there is no set amount routinely written off, you could write off up to 83.8% of your unsecured debt.

I want someone else to deal with my creditors

If you owe money to multiple creditors, and they’re all demanding payment, this situation can be stressful, to say the least. Another benefit of an IVA is that an appointed professional, known as an Insolvency Practitioner, will deal with creditors on your behalf.

Therefore, once this agreement comes into effect, most forms of communication with these organisations should gradually cease. You should not receive a demand for payment while the IVA is active. This means it is a great solution for ensuring peace of mind.

I’m unable to pay my debts

An IVA is a form of insolvency which means you should be in a position where you realistically cannot afford to repay your debts.

I’m happy with the repayment period

An IVA isn’t a quick solution to your debts. Under most circumstances, an IVA will last for around five to six years. Given the benefits of this solution though, many consider the time limit worth it.

I’m able to make the monthly repayments

 Throughout the length of an IVA, you will make affordable monthly repayments towards your debts. The specific figure will be agreed upon during the initial stage and reviewed throughout the term of the IVA, but you should have a reliable source of income to ensure that payments continue to be made. Although circumstances change, and this figure can sometimes be adjusted to suit your needs, the repayments are something worth considering before committing to an IVA.

Criteria for an IVA

An IVA might be right for you if you meet the following criteria:
  • Your debts add up to more than £10,000 – you can get an IVA if you owe less, but the fees are high so there might be better options if your debt is smaller
  • You have at least 2 different creditors – creditors are people you owe money to
  • You don’t want to deal with your creditors directly
  • You have enough money to make IVA payments every month
An IVA can be flexible – if you don’t meet all of these criteria, you might still be able to get an IVA. For more advice, contact your nearest Citizens Advice or speak to an insolvency practitioner such as IVA advice, who can help you with a debt solution.

When an IVA might not be right for you

IVA’s usually involve paying a set amount to your creditors every month for a number of years – usually 5 or 6. You’ll have to pay as much as you can afford every month – so if you don’t have a fixed income or a permanent job, an IVA might not work for you.

An IVA also might not be right for you if:

  • You work in accountancy, law or financial services – check your contract to see if you can keep your job if you get an IVA
  • Your debts are less than £10,000
  • You don’t have any spare income or a lump sum available to pay your creditors
  • You get support for mortgage interest (SMI) – your SMI payments might stop and you might have to pay back any SMI you’ve had since 6 April 2018

Costs and risks of getting an IVA

Before you get an IVA, find out about the cost and how it could affect your:
  • Home
  • Possessions, savings and pension
  • Credit rating

Costs

IVAs are expensive because they have to be set up by a qualified insolvency practitioner. The costs depend on the size of your debt and how much you repay. On average, an IVA costs between £4,000 and £5,000. You’ll usually pay the costs in instalments as part of your IVA payments.

Home

If you own a home, you might have to remortgage it towards the end of the IVA. You can only remortgage your house if it has equity. Equity is the amount of profit you’d make on your home after you sell the property and pay off your mortgage. If you can’t get your house remortgaged, you’ll usually be expected to pay into your IVA for an extra 12 months.

Possessions, savings and pension

If you own a car or other expensive items, you might have to sell them to pay money into your IVA. You’ll probably have to use any savings you have to pay your creditors. If you get some money you weren’t expecting while your IVA is in place, this is called a ‘windfall’ – for example, if you inherit some money. You can usually keep the first £500, but you’ll have to pay the rest into your IVA. If you’re getting payments from your personal pension, this money counts as income and you might have to use it to pay your creditors. If you’re 55 or will turn 55 while your IVA is in place, it might count as a windfall if you withdraw a one-off payment from your pension – this is called a ‘lump sum’.

Getting credit

Getting an IVA will affect your credit rating – this could make it more difficult for you to get credit.

Check what your other debt recovery options are

Make sure you check if there are better ways to deal with your debts. You might be able to:  
  • Apply for bankruptcy – if you don’t have any assets, like property, or your home is worth less than the loans secured on it (this is called negative equity)
  • Get a debt relief order – if you don’t own a home, your debts are £30,000 or less and your assets and spare income are low
  • Set up a debt management plan – if you have some spare income each month to pay your creditors

How much debt is written off in an IVA?

Not all debts can be included in an IVA. However, most types of debt can be included, such as credit cards, personal loans, overdrafts, gas and electric arrears and payday loans.

Secured debts, such as mortgages or secured loans, and some other debts (including student loans, fines and child support) will still have to be paid separately, outside of the IVA. Find out more about the debts that can be included in an IVA.

What is the minimum IVA payment?

There’s no set minimum payment for an IVA, but if you can’t afford to pay a reasonable amount each month, your creditors are unlikely to accept the IVA proposal. In this case, other debt solutions, such as a debt relief order, maybe a better option for you. Find out more about IVA costs fees and charges.

How long does an IVA last?

An IVA usually lasts five years, but sometimes an IVA is extended for another 12 months to allow you to make the agreed payments. If you’re able to make a lump-sum payment, your IVA can end sooner.

If you’ve not been able to pay what you agreed within six years, the insolvency practitioner (IP) will work with you and your creditors and may extend your payment arrangements.

What restrictions will I face on an IVA?

An IVA should be considered with care because of the possible consequences for your personal, professional and financial life.

  • Your credit rating will be affected for six years, starting from the date the arrangement is agreed
  • You’ll have to keep to a budget agreed with your provider for the full term of your IVA
  • If you miss payments, your IVA will be extended to make up the arrears
  • An IVA could affect your employment and you should check your contract or speak to your HR department before applying
  • An IVA can affect any hire purchase agreements you have
  • During the IVA you must declare any additional assets you receive. It’s likely you’ll have to pay some of the value of these into your IVA
  • If you earn an additional income or bonuses during the IVA you’ll have to pay some of this into the IVA in addition to your normal contribution
  • Your IVA will be recorded on the Individual Insolvency Register (IIR). The register is maintained by the Insolvency Service and is available for viewing by the general public. It contains details of individuals who have a current IVA including their name, address and date of birth.
  • You can’t take out any new debts above £500 during the IVA

Before agreeing to an IVA, consider the following things:

  1. Are you ready and willing to commit to paying a monthly amount?
  2. Do you accept that you’re entering into a legally binding arrangement?
  3. Are you willing to release equity and sell assets of significant value?
  4. Do you understand that an IVA might negatively affect your credit file for six years?
  5. Is an IVA the right solution for your needs?
Remember that IVA’s can have strict rules, and certain elements might be off-putting for some people. For example, if you manage to find a credit lender that will offer you finance, you’ll still need to get written permission from your insolvency practitioner. You’ll also be on a public register called the Insolvency Register. Still, while the IVA terms can seem restrictive, they’re designed to help you to pay off your creditors and will relieve you of debt so you can build a better financial future. As soon as the IVA starts, it will be on your file for a maximum of six years, which means that you’ll be able to rebuild your credit rating.

Would You Like to Discuss Your Debt Solution Options?

IVA Advice is a registered Insolvency Practitioner (IP), we support our clients to manage their debts and repay creditors. From the initial advice to drafting an IVA proposal and securing a legally binding agreement, we can help you manage your obligations. Our friendly team is available to discuss various debt solutions and share information on how an IVA affects your finances. Please feel free to contact our registered office today, and we’ll help you manage your creditors and relieve the weight of debt that’s holding you back.