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How much can an IVA write off?
If you are wanting to apply for an IVA you might have some niggling questions that need to be answered and you may need some debt advice from an insolvency practitioner.
If you have a large debt, you may be wondering how much can IVA help with your debt in other words how much of your debt can it write off.
Let’s cover the basics – What is an IVA?
An Individual Voluntary Arrangement (IVA) is a legally binding agreement between you and the people you owe money to. IVAs were originally intended as a mechanism for dealing with ‘business generated’ personal insolvency, although in recent years, they’ve become increasingly popular with individuals.
In return for paying back what you can realistically afford in monthly payments (after living costs and essential expenditure has been accounted for), usually for a period of five years (you may also be required to release any equity that is available in your home – only if you can afford to), your creditors will agree to freeze interest and write off any outstanding debts. An IVA will also prevent your creditors from taking any further action against you, including petitioning for your bankruptcy, and will allow you to keep your home.
Be realistic about how much it can write off
If you’ve been researching ‘what is an IVA?’ then the chances are that you’ve already encountered some unrealistic claims about what IVAs can actually achieve. Some organisations claim that IVAs can write off up to 90% of your debt. Whilst this can happen in extremely rare cases, in reality, an IVA will write off between 50% and 60% of an average debt of just under £60,000. Such a typical IVA would mean a reduction in the money owed to between £25,000 and £30,000. How much debt is written off depends on your circumstances.
Is there a maximum amount for an IVA?
IVAs are only suitable for people with larger debts (typically over £15,000) and you need to be sure you can stick to a planned budget for five years.
Before entering into an IVA, you also need to be aware that fees are involved. However, as these are paid by your creditors to your Insolvency Practitioner, the person that manages the IVA process on your behalf, out of the money that you contribute each month, the reality is that they won’t affect you. Essentially, your creditors are agreeing to accept less money back in order to pay your IP. The only exceptions to this are if you have a significant windfall during the IVA and are able to pay back your debts in full or if your IVA fails. In these circumstances, your creditors may require you to contribute an amount to cover fees on top of your debts.
IVAs are a lifeline for many tens of thousands of people in the UK each year. However, entering an IVA has significant professional and legal implications, which must be fully understood before any decision is made.
Which debt solutions write off debts?
Insolvency solutions to write off debts in England, Wales and Northern Ireland
- Bankruptcy: A form of insolvency that writes off unsecured debts if you can’t afford to repay them. Any assets you have, such as a house or car, may be sold to pay off your debts
- Debt relief order(DRO): A way to have your debts written off if you have a relatively low level of debt and have few assets
- Individual voluntary arrangement(IVA): A formal agreement where you make affordable payments to your debts, usually over five or six years. You can also make a one-off payment, so the IVA lasts for a much shorter time
How badly does an IVA affect credit rating?
If your debt is written off the debt in full, it’ll usually be marked in your credit history as paid. However, if you’ve missed any payments, paid less than the contractual agreement, or the account has defaulted before you paid off the balance, it’ll be recorded on your file for six years.
In some cases, creditors may be willing to write off part of a debt if you offer to pay off the remaining amount in a lump sum, or over a few months. This is known as a full and final settlement, and it’ll be marked on your credit file as a partial payment.
It’s not guaranteed that your creditors will accept your offer. Your chances of them agreeing will often depend on the amount you can payback. But creditors are more likely to agree to a partial settlement than simply writing off the whole balance.