Each year over 70,000 people in the UK use an Individual Voluntary Arrangement (IVA) as a means of resolving their debt issues.
You may have heard that an IVA is a simple way to consolidate your debts and even offers an opportunity to leave you completely debt-free in the future.
That’s true! But while IVAs are becoming more popular each year, they’re not suitable for everyone. Keep reading to find out the IVA criteria that you’ll need to meet if you’re hoping to be approved for an agreement.
Let’s take a look.
- IVA Criteria: Who Qualifies For An IVA?
- 1) Are You Insolvent?
- 2) How Much Debt Do You Have?
- 3) How Many Creditors Do You Have?
- 4) Do You Have a Regular Income?
- 5) Can You Pay a Minimum of £80pm into an IVA?
- 6) Would an IVA Give a Better Return For Your Creditors?
- 7) Do You Reside in England, Wales or N. Ireland?
- ‘What Information Do I Need to Provide As Evidence?’
- ‘How Do I Set Up An IVA?’
IVA Criteria: Who Qualifies For An IVA?
Before we dive right in, it should be noted that most of these criteria are not completely fixed. Rather than a simple yes or no, each is considered as part of a ‘scale of approval’.
But ultimately, your creditors need to approve the IVA for it to be formalised. So the more of these criteria you can put a tick next to – the greater your chances are.
So what are they? Generally speaking, an Insolvency Practitioner (IP) will look for a client to meet the following IVA criteria:
- a minimum debt level of £5000
- a minimum of 2 creditors
- a regular income
- the ability to pay a minimum of £80 per month into the IVA
- an IVA should offer a higher return for your creditors than bankruptcy
- you must reside in England, Wales or N. Ireland
If you meet (at least the majority) of the criteria above, you have a good chance of being approved for an IVA.
Don’t worry if you’re unsure if you meet some of these, or if you’re not clear on what they mean. We’re going to break-down each one in turn.
So sit tight and take a look through the following. Once you can answer these 7 questions, you’ll have a good idea of whether you’re likely to qualify for an IVA…
1) Are You Insolvent?
Being insolvent means you aren’t able to pay the money you owe (to either a person or company) on time, and that the value of these debts is greater than the value of your assets.
Assets are things that hold value and could be sold to pay off your debts. So if these are worth more than your total debts, an IVA is probably not a suitable option and your creditors may wish to pursue bankruptcy.
2) How Much Debt Do You Have?
So, how much debt do you need for an IVA?
Typically, to be approved for an IVA you’ll need to have at least £5000 in unsecured debt. Officially, there is no minimum debt level required. But we give £5000 as a guideline because this is a common figure that the best IVA companies will use. If your unsecured debt level is below £5000 then a case-by-case decision will be made on your circumstances – you’ll either be encouraged to still apply for an IVA, or an alternate debt solution will be suggested.
What is Unsecured Debt?
Unsecured debt refers to a debt that isn’t backed up by an asset, for extra security. This makes it more difficult for a creditor to recover if you don’t pay what you owe.
As a result, unsecured debts are typically associated with higher rates of interest. Basically, for the lender, they’re riskier!
So what does this mean in terms of the IVA criteria?
Generally, you can include most types of debts in your IVA proposal. For example, you’re able to include your priority debts like your tax debts, council tax arrears, etc. However, you would not be able to include your mortgage, court fines, or child maintenance/support arrears. If your unsecured debts are under £5000, then there might be other debt repayment solutions that are more appropriate for you – such as a Debt Relief Order (DRO).
3) How Many Creditors Do You Have?
In simple terms, a line of credit is when a lender makes an agreed amount of money available to you. Each lender is known as a creditor.
To qualify for an IVA – you’ll need at least 2 of these. Essentially, you’ll need to owe money to at least two different people, businesses, or companies (i.e. your creditors).
Once you begin the IVA process, you’ll work with an IP to develop a proposal. This proposal needs to be voted on by your creditors, and your IVA will only become formally agreed if at least 75% of your creditors (in terms of their value) vote in favour of the proposal.
4) Do You Have a Regular Income?
‘Do I need to be working to apply for an IVA?’ – this is a question we hear all the time.
An IVA is a legally binding debt solution, so you must maintain regular monthly payments as part of the arrangement. An IVA is unlikely to be approved if you can’t show that you have a regular source of income to make these repayments.
But this doesn’t mean that you have to be working. Your income could be from:
- full-time employment
- part-time employment
- a regular contribution from a third party
If your source of regular income is low, but you can also use a lump sum or assets in your IVA, this may help your chances of approval.
Once you enter into an IVA, it will be reviewed every 12 months to make sure that it’s still suitable and sustainable for your circumstances. Having a regular source of income will go a long way to easing concerns about being able to continue repayments months into the future.
Overall, your creditors will want confidence that:
- you have ongoing income that is relatively stable
- you’re able to make the repayments while still caring for your essential needs and without falling into a state of destitution
- you are living with your means and not spending excessively
This ties in nicely to the next criteria…
5) Can You Pay a Minimum of £80pm into an IVA?
As long as you can afford to contribute a minimum of £80 per month into your arrangement, this is usually acceptable to get debt help.
Above £80 there is no fixed limit on what you would need to pay. This is entirely dependent on your personal circumstances and what is realistic for you.
As part of the preparation for an IVA, you’ll work with your Insolvency Practitioner to assess your financial situation and determine what is feasible. Honest declarations must be made here, or your IVA is likely to fail. Plus, because an IVA proposal is legally binding, a false submission is considered to be a criminal act.
The amount must also be realistic for the long-term, as you need to sustain the agreed monthly repayments, even if your circumstances change. And while it’s impossible to predict the future, recent periods of unemployment could influence your creditor’s opinion on whether the proposed payments are reasonable – this is a common cause of IVA fails.
If you can meet a minimum of £80 per month, then an IVA could be suitable for you. But if you’re not sure how much you could contribute, it’s a good idea to work on building a personal budget and seeking professional advice.
6) Would an IVA Give a Better Return For Your Creditors?
If your creditors are agreeing to make you completely debt-free after 5 years, they need to make sure that the deal you are offering them is better than if they made you bankrupt.
There’s no way around this. It’s your creditors who vote on your IVA proposal, so if they can’t see how an IVA would be better for them than bankruptcy, you won’t be approved.
Your IP will structure your IVA proposal in a way that makes it more attractive to your creditors than bankruptcy, which is why they tend to accept the majority of proposals put forward to them. Still, we recommend that you seek expert debt advice through a qualified advisor when you’re considering an IVA, as it will still impact your credit rating. While IVAs are not publicly advertised like bankruptcy is, all insolvencies are placed on the Insolvency Register which can be viewed through a search function online.
7) Do You Reside in England, Wales or N. Ireland?
This one’s simple – you need to currently live in England, Wales or Northern Ireland to be eligible for an IVA.
If you’re a resident of Scotland, then an IVA is not available to you, but a similar solution exists – Trust Deeds. For more information, check out our post on Scottish Trust Deeds.
‘What Information Do I Need to Provide As Evidence?’
As long as you can evidence that you meet the above criteria, you’re likely to be suitable for an IVA. Of course, if you’re still unsure you can use our handy IVA Calculator.
Let’s assume you are eligible. What do you need?
You’ll need to provide personal information to build your IVA proposal – but as long as you choose one of the best IVA companies, you needn’t worry about data protection, privacy, or confidentiality.
For example, you can expect to provide:
- proof of identification
- your last 3 months payslips (if applicable)
- your last 3 months bank statements
- statements for all your unsecured credit (credit cards, store cards, catalogues, etc)
- current council tax bill
- contact details for all companies and individuals that you owe money to
- monthly income and spending details
- housing information (for example mortgage statement or tenancy agreements)
- details of any assets you hold that are of significant value
In addition to this info, a credit file check will be conducted, and in most instances, this will bring up all of the outstanding debts you have. Alternatively, your advisor could arrange a conference call with your lenders to confirm the outstanding balances, reference numbers, and settlement figures.
So you’ve checked the eligibility criteria and are confident you can provide the required info. Great stuff. Now it’s time to get the process started…
‘How Do I Set Up An IVA?’
If an IVA is your best debt solution, we can help guide you through the set-up process. We’ll review and compile your financial information, so you’re all ready to build your proposal.
But the only way you can truly know if you qualify for an IVA is by getting professional advice. You can do this immediately (and for free) by using our online debt calculator tool.
Alternatively, give us a call today on 0800 233 5753 and speak with one of our friendly debt specialists.