Did you know that thousands of people turn to an Individual Voluntary Arrangement every year to relieve themselves of debt? According to the GOV.UK website, in the three-month period ending in August 2021, there were 7021 IVA’s registered per month, showing that this solution is a popular option for many.
If you’re struggling to pay off your debts and are feeling stressed by the constant threats from your creditors, taking out an IVA could give you the breathing space you need to recover financially.
Most of our clients come to us because they’re out of options, and we need to stress that while an IVA is a helpful debt management plan, it is a legally binding agreement that stays on your credit file for six years.
Let’s take a look at who might benefit from an IVA.
What Are The Criteria For an Individual Voluntary Arrangement (IVA)?
Having some money management issues and being insolvent are two very different things. For a start, many people find that their debts can get on top of them, but if they work out a new budget, they can stay on top of things.
If you’re insolvent, it means your debts outweigh your assets and paying back the required monthly amount means you can’t afford your daily living costs, including groceries and utility bills.
When someone has assets that can help them pay off their IVA, it’s usually best to take this route because it means they can use their assets to become debt-free without impacting their credit file.
How Much Debt Should I Have?
The general rule of Individual Voluntary Arrangements is there’s no minimum debt amount, but you need to have outstanding debts from at least two creditors. However, any reputable insolvency practitioner will advise that you have at least £5000 of debt before taking out an IVA.
If you owe less than £5000, it can be beneficial to explore other debt solutions, as they might enable you to pay off the money quicker, without it impacting your credit file.
There are, however, many things to consider, including whether you’ll have enough to pay for your living expenses and other outstanding bills.
What Debts Can I Add to My Debt Management Plan?
In general, you can add most debts to your IVA, but court fines, child maintenance and support arrears or mortgage payments aren’t eligible. Council tax, utility bills, loan repayments and credit card debts are all included in your IVA, as are unsecured loans.
An unsecured loan isn’t backed by any assets such as your home or car, so many lenders will increase the interest rates on unsecured financing.
While this means you can access the money you need, it also means you’ll have hefty interest rates, which is why so many people get into debt.
By adding your outstanding debts to an IVA, you can pay them off slowly, without worrying about the interest rates continuing to rise.
What Will an Insolvency Practitioner Look For?
Insolvency practitioners are trained professionals, and they take everything into account before offering an IVA as a debt solution. In some cases, a debt relief order might be a more suitable solution, but a good practitioner will assess your circumstances before making a decision.
Do You Have a Regular Income?
To pay for your IVA, you need to have some form of income, but this doesn’t necessarily mean it must be from employment. Some people can use their benefit payments, and others might have family members or other financial gains that enable them to keep up with the monthly repayments.
Some people also can pay an initial lump sum into the IVA, which means their monthly payments will be lower.
You need to have a regular amount of money coming in and prove that it’s not subject to change any time in the future.
Are You Aware of How an IVA Will Impact Your Life?
When you enter into an IVA, you’ll become a member of the individual insolvency register, which means you’ll have limitations on what you can do. Credit reference agencies will see you have an IVA, and it will impact your financial viability.
As your IVA is a legally binding arrangement, you’ll be restricted as to what you can do when the IVA starts – but it’s also the best solution to reduce your debt and improve your financial situation.
How Might My Debt Amount Impact My Monthly Payments?
The more debt you have, the more you’ll have to pay off. However, if you’re having debt problems but your total debt is less than £5000, your insolvency practitioner might suggest other solutions, such as debt relief orders.
You can still enter into an IVA with small amounts of debt in some cases, but all your creditors have to agree to the proposal.
Would You Like to Speak to an Insolvency Practitioner (IP)
If you’d like to discuss your debt problem with a professional, please feel free to contact our friendly team today. We can answer any questions you might have, including how an IVA impacts your credit score and what will happen if your IVA fails.
From drawing up an IVA proposal to dealing with your creditors and helping you to understand your obligations, our insolvency service gives you independent advice and proactive solutions.
Please feel free to contact our registered office today.