If you are insolvent and looking to get back on track, there are several formal and informal solutions available to you. One solution which is widely recommended to individuals with a variety of debt situations is an Individual Voluntary Arrangement – more commonly referred to as an IVA.
With an Individual Voluntary Arrangement, you enter into a formal, legally binding agreement with your creditors which lasts for a period of five to six years.
During that time, you make monthly payments on the debts you owe, but you pay only what you can afford after reasonable monthly expenses. Once the period of the IVA is complete, any remaining eligible debts you have will be written off.
You can only get an individual voluntary arrangement if you live in Wales, England, or Northern Ireland. If you live in Scotland, you should look a Protected Trust Deed is a similar but distinct option. While these are the best solutions for the majority of customers, in some situations a debt management plan (DMP), bankruptcy or other solution may be more suitable.
In this guide we will provide an outline of what you need to know about an Individual Voluntary Arrangement, including:
- The benefits of using an IVA
- The requirements for qualifying for an IVA
- The impact on your life of using an IVA
- How you apply for an IVA
You pay only what you can afford.
When you are on an individual voluntary arrangement, you are no longer forced to make payments on your debts that are outside of your means. After your basic living expenses are subtracted from your budget, your spare income will go toward paying off your creditors each month. This needs to be at least £100 a month. So long as you can afford that, you can afford to live on an individual voluntary arrangement.
An IVA is simple and affordable.
If you are exhausted by all the complexities of juggling your monthly bills, you will be relieved to know that an IVA consolidates all your debts into one simple monthly lump sum payment. You just send that one payment each month, and your IVA company takes care of the rest. What about the cost of the IVA? It is bundled right into the monthly sum.
You are protected from your creditors.
They cannot take legal action against you, and your IVA company will act as a go-between after the IVA goes into effect. That means no more threatening calls and letters!
This is a route to a clean slate.
Once your IVA is complete, your remaining debts will be written off. You will owe nothing, and will be able to start over and get back to a profitable life. Imagine being able to actually save money again.
Your home and car are protected.
There are a few jobs you cannot hold while you are on an IVA, but the vast majority are protected. You can even run your own business while you are on an IVA (this is a difference with bankruptcy). And unlike with bankruptcy, your home, at least one vehicle, and your assets are protected (if you request it—though you may want to think about selling some assets to enhance your offer).
There are only a few simple requirements to qualify for an individual voluntary arrangement:
- You must live in England, Northern Ireland, or Wales.
- You must have at least £100 a month you can afford to pay to your creditors.
- You must have a reliable monthly income.
- You must owe at least two debts to at least two creditors, totalling at least £8,000.
That last requirement (£8,000 in debts) is not a hard rule, but it is difficult to get approved if your debts total less. Also note that IVAs are designed to help liberate you from unsecured debts. If you have a large number of secured debts, another debt solution may be more appropriate. Likewise, if you have a smaller amount of money you owe, or you do not have a reliable income, there may be a better option out there for you.
One last thing to be aware of with an IVA is that you may have to remortgage your home as part of the process. Whether you need to do this or not depends on how much equity you have in it. If it isn’t much (or any), you will not be asked to do it. You will simply be asked to keep making payments on the IVA for six years rather than five. If you do have considerable equity, your creditors are going to want a piece of it. You would be asked to remortgage in order to use the equity to pay them off.
An Individual Voluntary Arrangement has short-term advantages and disadvantages. Over the long term, it should help you to turn your life around for the better.
Short-Term Effects of an IVA
- Your credit rating will take a temporary hit; the IVA will stay on your file for six years, beginning at the date of the arrangement’s inception. During that time, it will be harder to qualify for new loans or lines of credit if you need them. Your IVA will be publicly recorded in the Insolvency Register, though thankfully no one is likely to see it unless they are searching for it.
- Some jobs may be lost because of an IVA, though the vast majority will be protected. If you are in any doubt, you should talk to your HR department before deciding on an IVA.
- While you should be able to keep at least one low-value vehicle, if you own any additional vehicles or luxury vehicles, you may need to sell them. You can ask that personal assets be left out of your proposal to your creditors, but many people choose to include them (and sell them) to enhance their offer.
- Your whole life will change from the moment the IVA goes into effect. Right now, you probably hear from your creditors a lot. Imagine if all those threatening calls and letters ceased. With an IVA, they will – and if they do not you can contact your Insolvency Practitioner who will contact the creditors for you to insist that they cease contact.
- Imagine if you no longer had to send in—or ignore—dozens of monthly bills for debts you cannot afford to pay off. Imagine if instead you just got one monthly lump sum bill that you could afford.
- On an IVA, that is all you pay. The rest of your money goes toward your regular monthly expenses, which prevents you from falling further into debt or losing your home or utilities. That means your whole quality of life improves immediately. All that fear and anxiety just washes away. Everything is simple and smooth. Your Insolvency Practitioner (IP) is there to guide you and act as your advocate. You can actually get back to focusing on living your life and improving your situation.
Long-Term Effects of an IVA
After five to six years, your remaining debts are written off. You actually have a chance to save money and work towards your future. You are no longer weighed down by the past. Six years after your IVA is approved it will be removed from your credit record and you will be able to rebuild your credit rating.
If you think an IVA may be right for you and are ready to move forward, here are the steps to getting one set up:
- Make sure that an IVA really is the right choice for you. You can do this by calling IVA plan and speaking to one of our experienced advisers.
- If the Money Adviser agrees that an IVA is the best choice, you can move forward with the application. Your adviser will work closely with you to draft a proposal for your creditors.
- Your adviser will schedule a meeting with your creditors to discuss the proposal. If 75% or more approve the arrangement, your IVA will go into effect.
At that point, you will begin making your lump sum monthly payments and you may begin enjoying the benefits of your IVA. Once a year you will meet with your insolvency practitioner to make sure that your IVA is still a good fit for your income level and needs.
Have more questions about Individual voluntary arrangements? Interested in seeing if you might qualify? Call IVA Plan on 0203 326 9000 to discuss your situation with an experienced money adviser. Your consultation is free and there is no obligation. We look forward to helping you make a fresh start.