Individual Voluntary Arrangement (IVA)
An Individual Voluntary Arrangement - or IVA for short - is a formal, legally binding arrangement between an individual and their creditors. The arrangement lets both parties agree on an affordable monthly payment to be made towards a debt for a fixed period – usually 5 years. At the end of this period, any outstanding debt will be written off and the individual will be discharged from the IVA.
Advantages of an IVA
- An IVA protects the debtor from being harassed by the creditors via threatening chaser letters, phone-calls or house calls. Once approved, all correspondences with the creditors will be dealt with by a licensed Insolvency Practitioner.
- Interests and charges on the debts included in the IVA will be frozen, so this debt will never increase.
- Fees for the IVA will be taken directly from the debtors agreed monthly payment, so there won't be any unexpected or surprise bills.
- Your home is protected as long as you keep up with your agreed monthly payments.
- At the end of the term, any outstanding debt will be written off.
Disadvantages of an IVA
- The IVA will appear on your credit file for 6 years and will likely have anadverse effect on your credit rating.
- Creditors generally don't consider expenses such as socialising, holidays, savings, beauty treatments or gym memberships to be essential financial commitments, so you may have to sacrifice some of these luxuries in order for your creditors to agree to an IVA proposal.
- If you don't stick to the terms of your IVA it could fail, leaving your creditors to pursue you for the debt in full again.
- Only unsecured debts can be included – such as credit cards, unsecured bank and finance company loans, payday loans etc. You will need to maintain payments to secured debts such as mortgage or other secured loan payments.
How it works
First, your Insolvency Practitioner will conduct a thorough assessment of your financial situation to make sure that an IVA is the most suitable course of action. They will look at the level of debt you have and the creditors that you owe these debts to, as well as assessing your income and expenditure and any assets that you may have.
If an IVA is the most suitable solution for you they will work out what you can realistically afford to pay each month after essential monthly commitments are met. A proposal will be put forward to each of your creditors with the amount you can afford to pay each month. If creditors which hold at least 75% of your total debts agree to this proposal, then the IVA will be approved and the terms set out will apply to all of your creditors, including any that may have rejected the initial proposal.
Once approved, you will no longer have any direct-dealings with your creditors as your Insolvency Practitioner will now be your IVA supervisor and will deal with all correspondences with creditors on your behalf. They will also act in the interest of your creditors to ensure that you keep to the agreed conditions of the IVA - namely keeping up with monthly payments for the duration of the IVA. Your IVA supervisor will take any fees due to them from this monthly payment before distributing the rest to your creditors.
Your financial situation will be reassessed annually throughout the IVA to ensure that your monthly payment still fairly reflects your disposable income each month. It is important to cooperate fully and honestly with your supervisor. If your income has increased significantly since your last review, your Supervisor could request that your monthly payment also increases for the benefit of your creditors. Likewise, if your situation has deteriorated, your supervisor may be able to help by extending your IVA at a lower monthly payment. You must let your supervisor know as soon as possible if your income does decrease significantly.
At the end of the term, when you have paid your final contribution to your IVA, the remainder of your debt will be written off and you will be discharged from the IVA. Three months after the final payment has been made your name will be removed from the Individual Insolvency Register.
Frequently Asked Questions
Who can apply for an IVA?
Only residents of England, Wales and Northern Ireland can apply for an IVA. There are different solutions for residents of Scotland, such as the Protected Trust Deed or Debt Arrangement Scheme. You must also be employed with a steady income and have some disposable income left over at the end of the month.
Can I set up my own IVA?
No. An IVA is a very complex, legally-binding arrangement which can only be administered by a licensed insolvency practitioner.
What are the minimum and maximum amounts of debt that can be included in an IVA?
There is no official minimum or maximum level of debt to be considered for an Individual Voluntary Arrangement. However, most IPs will generally only deem an IVA suitable if your debt level is more than £5,000.
Will I have to sell my home?
It is unusual to have to sell your home as part of an IVA agreement. Provided that you keep up with payments, the IVA will provide protection on your home. If you have a significant amount of equity in your home however, you may be required to remortgage towards the end of the IVA.
How much will the IVA cost me?
This will depend on your level of monthly contribution. Your Insolvency Practitioner will explain any associated costs in full before you sign the IVA. The fees to your Insolvency Practitioner will be deducted from your IVA payment each month, and not added over and above this payment.
How will an IVA affect my credit rating?
An IVA is likely to have a negative impact on your credit score, meaning that you will unlikely be able to obtain credit. It will appear on your credit file from the date it is accepted and will stay there for 6 years before being removed. After this you can start working on rebuilding your credit score.
What debts can be included in an IVA?
Only unsecured debts can be included. Such things as credit card and store card debt, payday loans, and unsecured bank or finance loans.
You cannot include mortgages, mortgage arrears or rent arrears or any loans secured against your home. Court fines, parking fines and speeding fines cannot be included either.
Who will find out about my IVA?
Your name and address will be published on the Individual Insolvency Register, which is publically accessible via the internet. It will also be published in the Stubbs Gazette, which is a magazine available to banks, finance companies and Insolvency Practitioners.