Individual Voluntary Arrangement (IVA)
What is an IVA?
An IVA is an arrangement between you and your creditors, which most commonly, allows you to repay in one affordable monthly sum. This amount is distributed to your unsecured creditors, i.e. store cards or self-employed business debts on a pro-rata basis. What you pay is calculated based on your income & expenditure, allowing you to live your life reasonably and without creditor pressure, as an IVA prevents creditor threats and bailiff action. An IVA is particularly useful for sole traders who are looking to avoid bankruptcy but can’t secure the finance needed to pay off liabilities.
IVA fees & costs
As a licensed insolvency firm, we can help you come to the IVA arrangement. As a formal repayment plan, it requires a licensed insolvency practitioner (IP) to maintain the agreement. Our fees come out of your monthly payments; deducted before the funds are shared out amongst your creditors. This makes it simple for you, as the fees are automatically deducted and not payable on top of the monthly payments into your IVA.
Creditors will currently be taking (or demanding) repayments from your account irrespective of whether you can afford it. Often, they will agree to an IVA as it can represent a better return than if you were to go bankrupt.
When is an IVA appropriate?
To be considered for an IVA, there are criteria which your situation must meet.
These include:
- Having a certain amount of unsecured debt which you are struggling to pay. IVAs are often most effective for debts exceeding £10,000. Other solutions, such as bankruptcy, a debt management plan, or a Debt Relief Order, may be more appropriate for smaller amounts of debt.
- Having an income which can support monthly repayment contributions after your necessary outgoings, such as rent/mortgage repayments, bills, food petrol deductions etc
Creditors can be flexible in terms of what they deal they agree too. They can take monthly amounts, as well as large lump payments. If there is substantial equity in any assets you own, creditors may expect that some of this equity is released as part of your IVA.
Benefits of entering into an IVA
- An IVA halts all unsecured creditor action (including the use of bailiffs) and takes the pressure off. Once agreed, all parties are committed to the terms.
- IVA proposals are created based upon what is affordable to the debtor, alleviating multiple, unaffordable creditor repayments.
- You can often retain your home through an IVA. Mortgage repayments are also factored into a person’s outgoings when determining the affordability of IVA repayments.
- Any remaining debt is legally written off after your last IVA payment.
Things to consider before entering into an IVA
When considering an IVA, there are some drawbacks which need to be weighed up before you commit, as once accepted by your creditors, an IVA proposal becomes a binding contract.
- It will have a negative impact on your credit rating, although if you already have been struggling with your finances, your credit rating may already be damaged.
- If you are a house owner, you may have to try to re-mortgage to contribute towards your debts when nearing the end of your arrangement.
- Secured debts, child maintenance, student loans and fines are not eligible for inclusion in an IVA. They will, however, be taken into account when establishing affordability.
- Will you realistically be able to pay the monthly amounts required? There is no guarantee that your creditors will accept an IVA