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Individual Voluntary Arrangement (IVA)
An IVA is a legal agreement between you and your creditors. You offer to pay as much as you can reasonably afford towards your debts, for normally 60 months, in exchange for the remaining debt being written off.
Creditors are people, companies or other organisations owed money too. In most cases these are lenders, but can also be the local council, the Taxman or a service provider.
An IVA may be suitable if…
- You have at least £5,000 of unsecured debts.
- You have 3 debts – but not all to the same creditor.
- You can’t pay your debts as you’re being asked.
- You have little prospect of repaying your debts in full within a reasonable time.
- Your financial circumstances are stable enough that you are able to commit to regular payments for 60 months of at least about £100. Actual payments depend on your ability to pay.
- It’s in your best interests to avoid bankruptcy or bankruptcy is not appropriate.
- You are able to demonstrate proof of circumstances.
IVA Advantages
- You are unlikely to be subject to employment restrictions or lose your job.
There may be a specific clause relating to IVAs in your employment contract. - Your home is protected.
You may have to re-mortgage to release equity in the final year of the IVA. In bankruptcy, you may lose your home if the equity in it is needed to pay debts. - You may continue to run your own business or be director of a private limited company.
In bankruptcy, you cannot be a company director. - No risk of a restrictions order.
Rash behaviour could impact the chances of an IVA being approved.
In bankruptcy, you may become subject to a Bankruptcy Restriction Order if the Official Receiver considers you have been blameworthy and/or reckless in contributing to your bankruptcy. - No potential of judicial investigation into your finances.
In bankruptcy, the Official Receiver will investigate your financial affairs and report any irregularities to the courts. This could result in criminal proceedings. - Under certain circumstances an IVA can result in an existing bankruptcy being annulled.
IVA Disadvantages
- You pay back more of your debt.
This is the advantage for the creditors. IVAs were created, in part, to allow creditors to get back more of their money than they would through bankruptcy. In bankruptcy, you may be required to make payments from income for up to 3 years if you can afford to. With an IVA you agree to repay what you can afford for five years. - You can still be made bankrupt.
If you fail to maintain the agreed IVA payments, your IVA may be terminated by your supervisor or your creditors may choose to start bankruptcy proceedings against you. This may leave you in a worse financial position than if you chose bankruptcy over an IVA in the first place, as debt is only written off at the successful completion of the IVA.
How an IVA works
An IVA is a legal process and can only be setup under the supervision of a regulated Insolvency Practitioner.
An Insolvency Practitioner is a regulated qualified professional who specialises in matters concerning formal insolvency procedures
You need to speak to an IVA provider such as ourselves to explain your financial situation.
If an IVA is suitable, and should you wish to proceed, we’ll help your prepare an IVA proposal. This is your offer to your creditors. It details your financial circumstances and how much you can realistically pay each month towards your debts.
The proposal is presented to all creditors – who vote on it. If 75% (by value of the total debt) who choose to vote (some don’t), do so in favour your IVA is accepted. All creditors, even those who have not voted or have voted against are bound by the IVA – meaning you are protected.
We Provide IVAs. An informal chat (about 20 minutes) with an advisor will make clear if an IVA is suitable for you.
IVA Benefits
Some debt is written off
After the agreement is completed, any remaining debt within the IVA is written off.
Affordable payments
You only need to pay what you can afford once you’ve met your essential living costs.
Interest and charges stopped
While your IVA is in place, creditors can’t add further interest or charges to your debts. This alone can represent a saving of £1000s over the duration of the IVA.
Creditor protection
While you are in an IVA creditors cannot take legal action against you to enforce payment for debts included in the IVA.
Important: Debt write-off depends on the circumstances of the individual applicant and applies only upon the successful completion of the IVA. Other benefits only apply while agreed payments into the IVA are maintained.
IVA Considerations
Unsecured debts only
Secured debts, some fines, child support payments, student loans and certain other debts cannot be included in an IVA. It’s your responsibility to maintain these payments and other financial commitments.
Credit Rating
During an IVA you can’t obtain further credit (some exceptions apply). A record of your IVA will be retained by credit reference agencies for six years.
Requires long term commitment
You can withdraw from an IVA application up to the point it is approved after which you are bound to formal insolvency proceedings.
Not Private
A record of your IVA will be retained by credit reference agencies for six years.
IVAs and Home Ownership
If you’re a homeowner your home is protected, unlike in bankruptcy where it could be forcibly sold.
In return for this protection, if you have significant equity in your property, you are likely to be asked to make a contribution from that towards the end of the IVA by way of re-mortgage.
This is subject to affordability; so you’re never required to pay more than you can realistically afford. Being in an IVA may further impact your credit rating and you may be unable to get a re-mortgage. If you are unable to re-mortgage, the IVA may be extended by a further 12 months.
We’ll answer your questions to help you decide if going bankrupt is the right option for you.