Individual Voluntary Arrangement (IVA)


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What is an Individual voluntary arrangement?

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. This means it’s approved by the court and your creditors have to stick to it.

An IVA can be flexible to suit your needs but it can be expensive and there are risks to consider.

How an IVA works

An IVA must be set up by a qualified person, called an insolvency practitioner. This will be a lawyer or an accountant. The insolvency practitioner will charge fees for the IVA. These can often be high and are based on the amount you pay back through the IVA. The insolvency practitioner deals with your creditors throughout the life of the IVA

If you go to a debt management company for an IVA, find out about how much they will charge before you decide. A debt management company is likely to be more expensive because they charge a fee on top of the insolvency practitioner's fees.

You don’t need to use a debt management company - you can find an insolvency practitioner yourself on GOV.UK.

How the repayments work

If you decide to get an IVA, you will work out a repayment plan with the insolvency practitioner. This could be monthly payments, a lump sum or a combination of both.

The repayment plan should be based on an amount you can reasonably afford and the creditors will need to agree it. If you're making monthly payments the IVA will usually last for 5 or 6 years.

Any repayments will be paid directly to the insolvency practitioner. They will then distribute the money to your creditors. Some of this will be kept by the insolvency practitioner to pay their fees.

If the payments you make aren’t enough to pay your debts in full by the end of your IVA, you won’t have to pay the rest. The insolvency practitioner should advise you about this.

If you come into money

If you receive a windfall during your IVA, for example an inheritance, this will usually be taken and paid to your creditors. If you find out that you're due some money because of something that happened before the IVA, your creditors might have the right to claim it too - even if your IVA has finished.

Individual voluntary arrangement (IVA) is a formal agreement to repay at an amount you could afford to your creditors.

This could be a one-off payment known as a lump sum IVA or over a long period to spread payments which last for five or six years. You make one payment each month affordably which is then divided amongst your creditors fairly. During your IVA, creditors should not be allowed to contact you or even increase your debt.

When the final payment is being made, any remaining debt left will be written off.

If you live in Scotland, IVAs are unavailable. In Scotland, a protected trust deed is a similar solution, but it is important to note that it has different fees, benefits and risks along with it.

Other issues to consider a with IVA

There are other issues you should consider first before you make the decision to enter IVA:

  •  The creditors may back date interest on your debts or may request that the Supervisor of your IVA petitions for your bankruptcy if IVA UK fail.
  •  Your spending will get restricted until the IVA comes to an end once your IVA has officially set up.
  •  You may ask creditors to review the terms you originally agreed to if your circumstances have changed during the term of your IVA. During your IVA you will get an annual review and you may have to increase your payment if your situation has improved.
  •  Only the debts which have been included in the arrangement will be discharged at the end of the agreement.
  •  Debts such as the money owed under family court proceedings, any court fines or debts arising from fraud, debts incurred after the IVA, or student loans cannot be included and will still be left to pay.
  •  We work with many trusted partners who can assist you in getting your IVA set up. If you wish to set up an IVA with one of our Trusted Partners, you may be subject to their individual set up fees.
  •  If you are either self-employed or live in Northern Ireland, you will get referred to a trusted insolvency practitioner who will administer and set up your IVA.
  •  If you are a homeowner, you will be asked to re-mortgage your property 6 months before your IVA expires. If you are unable to re-mortgage you could make 12 extra payments max or a 3rd party can offer a sum equivalent to the equity as an alternative.

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 must be set up by an insolvency practitioner.

An IVA can be flexible to suit your needs but it can be expensive and there are risks to consider. Most debts can be paid off through an IVA but there are some exceptions. This page tells you what debts can be included in an IVA.

Debts you can include

Most debts can be included in an IVA. However, IVA’s are normally used for the following types of debts:

  • Bank and building society loans and overdrafts
  • Credit cards
  • Personal loans
  • Store cards
  • Catalogues
  • Charge cards.

These are all called non-priority debts. You can also include priority debts such as:

  • Council tax arrears
  • Tax debts
  • Electricity and gas debts.

Mortgages, secured loans and rent

Secured loans are debts which are secured against your home. This means if you can’t pay the debt, they can take your home from you. You can include secured loans, mortgage or rent arrears in an IVA. However, your creditor will have to give their permission for it to be included and they are very unlikely to do this.

Amount of debt that can be included

Any amount of debt can be included in an IVA. There are no minimum or maximum limits set by the law. However, your creditors are unlikely to agree to an IVA unless your total debt is more than £6,000.

Number of debts that can be included

Any number of debts can be included but normally, an IVA will be suitable if you have more than three debts and two different creditors.

However, IVA’s can be flexible. If you decide an IVA is right for you, your insolvency practitioner will advise you on whether your debts are suitable for an IVA.

Debts you cannot include

Debts you can’t include in an IVA are:

  • maintenance arrears that have been ordered by a court
  • child support arrears
  • student loans
  • magistrates' court fines. 

What to do about debts you cannot include?

If you have debts that can’t be included in the IVA, you'll have to deal with those separately so you need to make sure you have enough money to pay these debts before paying money into an IVA.

You may want to choose a solution that can deal with all of your debts together.

Advantages of an IVA

*An IVA is a way to avoid bankruptcy and property repossessions

*You can make one affordable monthly payment

*The interest on your debts may be frozen and further charges can be stopped

*Debts included in your IVA can be cleared in 5 years

Disadvantages of an IVA

*The main disadvantage of an IVA is that your details will be added to the Insolvency Register

*Your credit Rating will be adversely affected throughout your IVA and usually lasts for an additional 1 year after the IVA has been completed

*Should the IVA fail then creditors may back date interest on your debts or may request your Supervisor petitions for your bankruptcy

*You may have to downgrade or even sell any high value asset (such as exchanging a luxury car for a more economical one)

Impacts of an IVA

how an IVA may impact your job, home or possessions.

Job

Having an IVA will not usually affect your job. But if you are in certain professions, such as solicitors and accountants, having an IVA may mean that you can no longer practice, or may practice only subject to certain conditions. If you are worried about the impact of an IVA on your job, check the terms and conditions of your contract to see if it says anything about continuing to work when you have an IVA.

Possessions

Everyday possessions such as items you use in your home are not affected by having an IVA.

However, if you own more expensive items, such as antiques or expensive jewelry, you may want to consider selling these to help pay your debts.

Assets

Assets are things you own that have significant value, such as a home, land or a car. You don’t need to have any particular assets to get an IVA but they may help you to pay your debts. Assets can be included in the IVA, which means you will sell them and use the money to pay the creditors.

If you are a homeowner, check the special rules about how your home is treated.

If you decide that an IVA is right for you, your insolvency practitioner will discuss your assets with you and whether these should be included in the IVA or whether you can keep them. You must tell the insolvency practitioner about all your assets. If you don’t, you will be breaking the law.

Any assets that you want to keep, such as a car, must be specifically excluded from the IVA. If you don't want to include an asset and the insolvency practitioner doesn't think the creditors will agree, the proposal won't be put forward.

How an IVA may impact your home.

Remortgaging your home

If you own your home, its value will be taken into account as part of your IVA. This means, in the final year of your IVA, you will have to get a valuation of your home to find out how much equity is in it. Equity is the money you'd make from the sale of a property, after any mortgages are paid off.

If the valuation shows there is more than £5,000 equity in the property, you will usually have to re-mortgage your home to raise a lump sum to put into the IVA. But you should not have to sell your home to do this.

With most IVAs there is a limit on the amount that you will be expected to raise by remortgaging. The limit is based on the value of your home and the amount of the mortgage that you already have. You will not usually be expected to remortgage if the new mortgage would extend beyond the existing mortgage term or beyond your state retirement age.

If you can't re-mortgage, you'll continue to pay the usual monthly contributions under the IVA for a further twelve months instead.

Can you keep your home out of an IVA ?

In extreme circumstances, you may be able to keep your home out of the IVA. But your creditors may not want to agree to this. An insolvency practitioner will be able to advise you about your particular situation. If you’re not sure, get advice.

Future income or assets

Having an IVA may affect any future income or assets that you receive. For example, if you decide to move to a new house while you have an IVA in place, any money you make from the sale may have to be paid into the IVA.

If your income increases while you have an IVA, you must tell your insolvency practitioner. If you don't, you could be breaking the law.

When an IVA is set up, it usually contains a windfall clause. A windfall is money you receive unexpectedly, for example, a lottery win, inheriting a house or getting a bonus payment. If your IVA has a windfall clause, you will have to pay any windfall money into your IVA.

How an IVA may affect your bank account, savings and pensions.

Bank accounts

If you get an IVA, you may need to change your bank account while the IVA is being set up. This is because your bank may be able to automatically take money from your account to pay any unpaid debts. This is called the 'right to offset'. A bank can only do this if your bank account is linked to the company you owe the debt to.

If your bank is linked to your debts, you need to switch your bank account. That way, your income will be safe.

If you're bank account has no links with your debts, you won't need to change it.

If you decide to get an IVA, your insolvency practitioner will be able to advise you about this.

How do you know if your bank account is linked to your debts?

Your bank account may be linked to one of your debts in the following ways:

  • if you have a loan or credit card debt and a current account with the same bank
  • your loan or credit card debt is with another company, but that company is owned by your bank
  • your bank and the creditor are owned by the same umbrella company.

You may be able to find out if your bank account is linked to your debts at: www.payplan.com/debtadvice.

Savings

If you have savings, you usually have to include these in your IVA, either by paying your creditors a lump sum or using the money to make monthly repayments.

State pension

If you're getting your state pension, it will be taken into account when you work out how much you can afford to pay into an IVA.

Personal or occupational pension

If you receive an income from a personal or occupational pension, it will be taken into account when you work out how much you can afford to pay into an IVA.

If you receive a lump sum as part of a personal pension, you may need to agree to pay this into your IVA.

If you are still paying money into your personal pension, creditors may ask you to stop paying into the pension and use the money to pay them instead. You would have to do this for the length of the IVA, usually five years. However, IVAs are flexible and if it's vital you continue to pay into your pension, it may be possible to compromise. Your insolvency practitioner can advise you about this.

You’re over 55 and have a defined contribution pension

If you’re over 55, have a 'defined contribution pension', and haven’t started taking money from your pension pot, your creditors probably won’t expect you to access it to pay money into the IVA, although you could choose to do so. If you start to take money from your pension pot during the term of the IVA, this will count as income and you may have to pay it into the IVA. Your insolvency practitioner will advise you on this. You should get advice from an independent financial adviser before agreeing to use your pension savings.

You could choose to cash in some of your pension to raise a lump sum for an IVA. However, this would leave you with less money to live on in retirement. It could also mean your creditors get access to the rest of your pension pot. You should get advice from a financial adviser before using your pension to pay off debts. A ‘defined contribution pension’ is based on how much has been paid into your pot, not your salary near retirement.

An IVA can be flexible to suit your needs but it can be expensive and there are risks to consider.

Not everyone can get an IVA - there are certain criteria that you need to meet.

What assets and spare income you need to get an IVA?

Spare income

To get an IVA, you should have some spare income each month to pay your creditors, usually at least £100. Your creditors are unlikely to accept an IVA if your payments are less than that.

However, an IVA can be flexible depending on your needs and circumstances. For example, if you don’t have much spare money from your monthly income but do have something that you can sell to raise a lump sum, you may be able to pay your creditors with the lump sum.

If you decide an IVA is right for you, your insolvency practitioner will advise you on what payments to make and how you might be able to increase your spare monthly income.

Regular income

An IVA will normally only be right for you if you have a regular and predictable income. This is because an IVA depends on you making monthly payments to your creditors over a period of a few years. If your income changes from month to month, an IVA may not be right for you.

Complete a budget

Before you decide on an IVA, complete a budget to see what spare income you have each month.

If you decide that an IVA is right for you, your insolvency practitioner will need a copy of your budget.

Lump sums

You may have a lump sum of money, for example money left to you in a will. This is likely to be included in the IVA. This means you will need to use this money to make your monthly payments to your creditors. You may use a combination of a lump sum and spare monthly income.

If you’re over 55 and have a 'defined contribution pension', you could cash in some of your pension to raise a lump sum for an IVA. However, this would leave you with less money to live on in retirement. You should get financial advice from an independent financial adviser before using your pension to pay off debt. A ‘defined contribution pension’ is based on how much has been paid into your pot, not your salary near retirement.

Assets

Assets are things you own that have significant value, such as a home, land or a car. You don’t need to have any particular assets to get an IVA but they may help you to pay your debts. Assets can be included in the IVA, which means you will sell them and use the money to pay the creditors.

If you decide that an IVA is right for you, your insolvency practitioner will discuss your assets with you and whether you need to include them in the IVA. You must tell the insolvency practitioner about all your assets. If you don’t, you will be breaking the law.

If you own a home

If you own a home, most IVA agreements include a requirement for you to get a valuation of your home in the final year. If there is equity in the property, you'll usually need to raise a lump sum to put into the IVA by re-mortgaging your home. Equity is the money you'd make from the sale of a property, after any mortgage or secured loans are paid off. You shouldn't have to sell your home to raise the lump sum. If you think you are being asked to sell your home, get specialist advice straight away.

If you can't re-mortgage, you'll continue to pay the usual monthly contributions under the IVA for twelve months instead.

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