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Is an IVA legally binding?
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Is an IVA legally binding?

Let’s not beat around the bush, an Individual Voluntary Arrangement (IVA) is a formal and legally binding agreement between you and your creditors to pay back your debts over a period of time. 

An IVA can be flexible to suit your needs but it can also be expensive and there are risks to consider. This article will help you decide if an IVA is the right thing for you.

Let’s look at some of the benefits of an IVA

  • 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 that you’ll only pay part of the debt

Find out if an IVA is right for you

An IVA might be right for you if:

  • 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 – if you need help working this out, contact your nearest Citizens Advice.
  • An IVA can be flexible – if you don’t meet all of these criteria, you might still be able to get an IVA.
  • Check what debts an IVA covers
  • Check if you can afford an IVA

Does an IVA cover all debts?

When you enter into an IVA, most of your debts will usually be included. Your insolvency practitioner, who administers IVAs, will confirm which debts are included.

  • Catalogues
  • Credit cards
  • Personal loans
  • Overdrafts
  • Gas and electric arrears
  • Council tax arrears
  • Water arrears
  • Payday loans
  • Store cards
  • Income tax and national insurance arrears
  • Tax credit or benefit overpayments
  • Debts to family and friends
  • Any other outstanding bills, for example, solicitor’s costs, invoices for building work and veterinary bills

Debts that aren’t usually included in an IVA include:

  • Mortgages and secured loans
  • Hire purchase agreements
  • Court fines
  • TV Licence arrears
  • Student loans
  • Child support arrears

When an IVA might not be right for you

IVAs usually involve paying a set amount to your creditors every month for a number of years – usually five years. 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
  • If you owe money to people or companies in the EU – An IVA might not be right for you if you owe money to people or businesses in the EU. These debts might not be covered by an IVA.

Costs and some 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.

Getting credit

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

Can I legally cancel my IVA?

An Individual Voluntary Arrangement goes on for about five years (60 monthly IVA payments) and then your debt ends for good.

However, in some circumstances, you might not be able to pay an IVA. 

For example, if you, unfortunately, have a long term illness, it will become increasingly hard to keep up with your IVA payments. In such a situation, cancelling your IVA might be an option to consider.

Cancelling an IVA means that you still owe your debt to your creditors. Your creditors may cancel your IVA if you can prove that you won’t be able to continue your repayments and that cancelling your IVA is the only feasible solution.

Another situation in which cancelling an IVA makes sense is if you convince your creditors that you can pay them more money if they get your IVA cancelled.

However, you shouldn’t get your IVA cancelled just because you can’t afford your payments. If you cannot afford the minimum monthly payments, consult your insolvency practitioner for advice on what to do.

He might be able to negotiate with your creditors and allow you to reduce the minimum payments on your debt. Moreover, you can also be authorised for a payment break in which you don’t have to make any monthly repayments to your IVA.

Does an IVA go to court?

Yes, for an IVA to become legally binding, the agreement must be sanctioned by the Court. Once the IVA has been accepted at the Creditors’ Meeting, the IVA becomes legally binding on all parties. It obtains its ‘legally binding’ status as a result of being registered by the Court. However, you will not have to attend court personally. In other words, you will not be required to attend court in order to enter an IVA. The general confusion surrounding the attending court issue is caused by the terminology that’s used.

Can an IVA be written off?

 Yes, it can, but it is always better to look at alternative options rather than just cancelling it.

 Debts can be written off formally through an Individual Voluntary Arrangement (IVA). This applies to people who have £5000 or more unsecured debts: such as loans, credit cards, overdrafts, payday loans etc.

There are options, so you don’t have to cancel the Individual Voluntary Arrangement (IVA) if you’re struggling to pay. Talk to your insolvency practitioner straight away – they might be able to change your regular payments.

If you still want to cancel your IVA, you can – but you’ll still have to deal with your debts, and you could be made bankrupt.

How to cancel your IVA

Write to or email your insolvency practitioner and ask to cancel your IVA. You can only cancel if your insolvency practitioner and your creditors agree. They might agree to cancellation if:

  • Your circumstances mean it’s unlikely you’ll be able to pay any more money – for example, if you have a long-term illness
  • You can show the creditors you’re able to repay more money without the IVA

If they agree to the cancellation, your insolvency practitioner will fail the IVA – this means the IVA hasn’t worked and will end.

Contact IVA Advice

If you’re looking for advice on securing an IVA, we can help you today. Our friendly team will discuss your options and look at potential repayment plans that offer convenience and security.

We’re authorised and regulated by the Financial Conduct Authority and we are a company registered in England. Our service guarantees you’ll get the best solutions for your situation, and all you have to do is tell us your details, and we can use our IVA calculator to work out the right repayment plan.

Please feel free to contact us at our registered office, or you can use our website to fill in your details, and we’ll get back to you ASAP. Our IVA proposal will aim to help your financial situation.

Remember, debt doesn’t have to be a black cloud that follows you around and working with us means you have an opportunity to remove past mistakes from your credit file. Contact us for a debt solution and debt advice today. We look forward to hearing from you.