What is an IVA and How Does It Work?

An IVA is a contractual agreement between yourself and your creditors which is set for you to pay either all or part of your debts. Under this agreements you agree to pay a set monthly fee to an insolvency practitioner who then divides the money between your creditor’s or Individual Voluntary arrangements are almost the last possible solution before bankruptcy. When a person enters into an IVA , it is a contractual agreement that is recorded on your credit file and has its pros and cons depending on the situation you are in. One of the advantages are that an IVA gives your more control of your assets compared to bankruptcy

Anyone considering an IVA must carefully analyse their situation and may be speak to a debt advisor who can give professional debt advice.

There are many organisations that offer Free Debt Advice and can help provide you with information on your Debt situation and will allow you to reach a decision on whether an IVA or an Individual Voluntary arrangement is right for you

Get an IVA (Individual Voluntary arrangement

In order to get an IVA you must instruct an Insolvency practitioner. The insolvency practitioner whom you decide to work with will calculate how much you can afford to pay and how long the IVA will last(normally 5 years)

Once it is agreed that you qualify for an IVA and that it is the best solution for your individual needs,, the Insolvency practitioner will contact your creditors and and hold a meeting with them(not literally) but on paper. The IVA starts providing 75% of your creditors agree to the IVA and it will then apply to all your creditors including those creditors who disregard this.

Benefits of an IVA

An IVA will stop creditors form chasing you or writing to you. This will also freeze any further interest being added to your debts

Cost to Set up an IVA

Normally there are 2 types of costs incurred when arranging an IVA . These costs include the initial set up fee and a handling fee . Both fees are normally included within your agreed monthly payment

Will an IVA adversely affect my Credit file

I am due Compensation for an accident i was involved in, will i get that award?

In short yes. The IVA shows on your credit file and it will affect your credit rating

No. All your compensation will go directly to the Insolvency practitioner and you will not get any of the award.

Where can i get a list of Organisations that can help me with Free Debt Advice?

Most organisations that can offer this service can be found on the Financial Conduct authority Website. Example of firms that can assist you with such a service are Citizens Advice Bureau and the Money Advice Service

How Does an IVA Work?

  • Have you got more than £7,000 of unsecured debt?
  • Are you in debt with at least 2 creditors??
  • Can you afford at least £50 monthly to pay towards your debts, regardless of being employed or self-employed?

The official Government website describes the Individual Voluntary Arrangement (IVA) as an agreement between creditors to pay all or part of your debts. You agree to make regular payments to an insolvency practitioner, who will divide this money between all your lenders.

Generally it does this by freezing all your debts and paying all your credit in a set duration of time.

After this set period, if you have been diligently following the set ground rules, then the remaining debts will be written off, hence you only apply if you can partially pay your debts but not its full amount. Proof of capabilities that you can pay your debt during the stipulated time, will also be required.

If by any chances you may be in possession of a large amount of money, IVA may be an alternative to paying off your creditors for sure.

Your proposal for the IVA should only be put together by a qualified professional called an insolvency practitioner. Their main role should not only be coming up with your initial proposal for your creditors but also, work with you during the whole stipulated time.

Generally, IVA is determined by two variables, which basically are your situation and circumstances in which your credit is on. This will be key not only to your Insolvency Practioner in coming up with the proposal, but also your creditors and the likelihood of them agreeing to your IVA plan. 

An IVA is a legally binding agreement between you and the people you owe money to.

This means once you have signed it, neither you nor your creditors can back out.

So you need to make sure it’ accommodates all aspects of your debt situation and repayment plan during the 60-72 months (5-6years) it’s going to last

How Much Does an IVA Cost?

Since you can’t apply individually, the Insolvency practioner does come at a cost.

The payment is usually handled in two ways

  • By paying a setup fee that you have agreed with your Insolvency Practitioner, to enter the agreements and any other cost associated with it. This price most likely may be high, and some have claimed to pay as much as £7000.
    It’s highly likely, depending on your debt situation, you can be forced to use your savings or personal pension if you are retired, as well as selling any high valued assets such as jewelry, to afford this.

You will also need to pay the handling fees as agreed by your IP for the contract and annual costs

Please note that you do not under any circumstances, pay for any charges before your IVA has been set up.

Which Debts Can You Pay Off With an IVA?

You can use an IVA to help pay off many common debts, including:

  • Overdrafts
  • Personal loans
  • Catalog debts
  • Council Tax arrears
  • Hire purchase debts
  • Mortgage shortfalls
  • Credit and store cards
  • The money you owe to HM Revenue & Customs, like income tax or National Insurance contributions.

Which debts can’t you pay off with an IVA?

You can’t use an IVA to pay off:

  • Student loans
  • Magistrates’ court fines
  • Certain types of car finance
  • Child maintenance or Child Support arrears.

Mortgage and Rent Arrears

Technically, you’re allowed to include mortgage and rent arrears and other secured loans against your property in an IVA.

However, many are the times creditors have refused to include this clause in the plan.

This is one of the more reasons you need to confirm with your debt councilor on what you can include or not in your IVA plan

Types of IVA Plan

1: Full and final IVA

  • This is whereby you make a one big payments to your lendors.It is usually recommended if you to those who readily have huge loads of cash to repay to their unsecured credit.

2:Self-employed IVA

  • This specific type of IVA is tailored for business owners who don’t need the added stress that comes with managing debts for their business.

What if I miss a repayment?

  • Depending on the number of times you have missed your repayments and your reasons for it, your creditors may choose to force you into filing for bankruptcy, this however should be the worst-case scenario most of the times, if you miss your payment at least once due to an exceptional scenario then the creditors may pass a blind eye, and consider it as one-off issue. It’s only if you stop the payment as a whole that things turn for the worse.

What assets can I keep?

  • The major advantage of IVA over bankruptcy is that it protects one from repossession by creditors. However, if you own a large equity in one of the properties; the creditors will expect a certain amount to be remortgaged to help in the debt repayment.
  • Most likely, they will focus on your unsecured debts.

How does an IVA Affect Your Credit Rating?

Your IVA will be listed on the Individual Insolvency Register, an online database used by credit reference agencies to update your credit rating. It’s harder for you to open new bank accounts, get loans or buy on credit if you have an IVA.

What if my Financial Circumstances Change During the Period?

It is your responsibility to ensure your creditors are notified of any financial change or circumstances.eg: you may be in luck, and inherit a large sum of cash, or worse may come and you end up losing your job, you are required to convey this as soon as possible for your creditors to update and possible review the agreement to suit the change of circumstance.

It should also be highly stressed that people should thoroughly and diligently research the practioner/supervisor before proceeding or making any cash payments, as they have been cases of conmen in the industry wrongly recommending IVAs when it was not the ideal choice for example, in place of bankruptcy or another debt management plan that would have been more viable.

It’s also good to point out that IVAs should only be considered for people in serious debt almost to bankruptcy.IVAs are not immediate quick-fix solutions or way out methods for paying debts. The primary reason for this being, though your debt will be paid at a reduced level, it will most likely take a longer period than the initial debt time.

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