7 Steps to using an IVA to manage unsecured debt

If you’re looking for an insolvency solution to help you to reduce the amount you owe and get back on your feet, you’re probably had an Individual Voluntary Arrangement (IVA) recommended to you.  This solution is available to consumers in England, Wales, and North Ireland.

If you are thinking about taking the next steps, then you are probably wondering how you can go about getting an IVA.  Getting a fresh start sounds wonderful, but debt arrangements can be complicated.

Below, we have laid out the basic steps to getting an IVA. These steps will not only get you back on the right track, but will help you to avoid the scammers out there.

Learn what an IVA debt solution is and how it works

Do your own IVA research

The first step to getting an Individual Voluntary Arrangement (IVA)—or any debt solution—is to make sure that it is the right choice for you.  The best way to do that is to research.  Learn as much as you can about IVAs, including what they are and how they work.  Look into debt trends, research alternative debt solutions – like a DMP or bankruptcy – and find the debt repayment plan that’s best for you.

Use IVA Plan resources

IVA Plan has put together extensive resources that may be able to help you with the debt question.  As industry experts, we have compiled these online resources to help you decide on a course of action.  We want you to feel comfortable with an IVA before you move forward, and we would be happy to arrange for an insolvency practitioner (IP) to offer you some debt advice before you apply for an IVA.

Look for a reputable company that specialises in Individual Voluntary Arrangements

An IVA is a legally binding agreement between you and your creditors. Although it can help you deal with your debts, creditors may pursue you if you find yourself not able to pay. That’s why you should go with a debt charity or IVA provider with experience in debt advice. Here’s what to look out for.

Avoid IVA companies that…

• Aggressively try to steer you towards certain debt solutions without proper debt advice.
• Charge no fee at all for debt management, or charge you a huge sum of money upfront.
• Operate without transparency (no street address, no phone number, poor website).
• ‘Guarantee’ your IVA will be accepted – your creditors will always retain the right to reject it.
• Use Insolvency Practitioners who are not licensed or regulated by the Financial Conduct Authority (FCA).

Go with an IVA company that…

• Is licensed to offer debt advice and services in England, Wales, and Northern Ireland.
• Employs licensed Insolvency Practitioners.
• Offers fair fees – IVA costs may vary, but typical fees range close to £5,000.  The best companies will not charge you all this money upfront, but will bundle it your monthly payments over the length of the arrangement.
• Discloses the risks of an IVA – an IVA will stay on your credit file for six years, and responsible debt charity or IVA provider will be honest with people about the risks.

Need help choosing the right IVA company? Click HERE for more information

Seek debt advice from a reliable provider

Before you go ahead with any form of insolvency – whether it’s an IVA, a DMP, or any other legally binding arrangement – you should first get free money advice.

If you have chosen a company or debt charity for your IVA, set up a time and a date to meet with your adviser – this can be done on their website, over the phone, or in person.  At that meeting, they will discuss your situation, offer debt advice, and help you decide whether an IVA really is the best fit.

Hunt down all the documents you need to set up you Individual Voluntary Arrangement (IVA)

When you attend your meeting with the IP, you will need to be able to prove every aspect of your financial situation.  To that end, you will need to bring documents with you.  These include:

• Pay stubs to prove your income.
• Bills or agreements which prove your debts.
• Bills which prove your mortgage, rent, utilities, and insurance costs.
• With these documents, it is possible for the adviser to get a comprehensive look at your financial situation and see exactly where you stand regarding what you can afford.  This will help the adviser to verify that an IVA really is the best solution, and to come up with a plan.

Work with your adviser to come up with an IVA proposal

At this point, you and your adviser will come up with a proposal for your IVA.  This proposal will tell creditors how much you can afford to pay each month on each of your debts.  If you are willing to sell any assets, you can include them in your proposal (otherwise, you can leave them out).

Wait for your adviser to get the IVA approved by your creditors

After you approve the proposal yourself, the next step is to get your creditors to approve it.  Thankfully this is not something you need to worry about doing yourself; your Insolvency Practitioner will take care of it for you.  All you need to do is make yourself available over the phone in case your adviser needs to ask you a question.

75% or more of your lenders need to approve the IVA at the meeting for it to go into effect.  If the IVA is not approved, some lenders may make a counterproposal.

Keep up with your payments and review your situation annually until the IVA is complete

At this point, you are all set.  Your IVA will be active, and your name will be entered into the Insolvency Register.  This is a public file anyone can access, but no one will likely find out about your IVA unless you mention it to them.

Your life will be greatly simplified under the IVA.  You will no longer need to make separate payments on all of your debts; they will all be consolidated under one monthly bill.  You will only pay what you can afford after expenses.  The fee for your IVA will be included in this bill.  You should not be asked to pay it upfront.

What is the minimum debt for an IVA?

With an IVA, there is no minimum, or maximum, amount of debt that can be included in the agreement. No matter how much money you owe, or many people you owe money to, you can technically use an IVA to pay back your creditors – so long as the debts included are unsecured debts.

While there is no upper limit on the amount you owe, you will have to pay fees towards an IVA, for services including retaining an Insolvency Practitioner. That means, if your debts are of a level lower than £10,000, you might be better looking at another kind of repayment plan.

Does an IVA write off debt?

Problem debt can hang over you like a cloud. One of the best things about an IVA is that it allows you to write off unaffordable debts without having to sell your home or take drastic action to raise a lump sum of money.

When you agree your IVA, you will pay a set amount in monthly fees for the length of the arrangement – usually five years.

Once that fixed period has come to an end, as long you have kept up with payments, any debt remaining will be written off – leaving you free to get on with your life.

How badly does an IVA affect credit rating?

Like a DMP or any other debt solution, an IVA will impact your credit rating, and remain on your credit file. Your credit rating (or credit score) is a three digit number that helps lenders decide whether they can trust you with money for a loan, hire purchase, or any other form of credit.

An IVA will also be documented on your credit file – a report that links to your credit history and is publicly available. Details of your arrangement will stay on your file for six years, and can make it more difficult for you to borrow money in the future.

How does an IVA affect your life?

It is important to continue to make your payments on time and in full every month.  There will be an annual review with your insolvency practitioner to make sure that you are on track and that nothing in your situation has changed.

If your income goes up or down, you will want to notify your adviser right away and not wait for the annual review. That way if an adjustment needs to be made, it can go into effect immediately.  This will prevent problems later down the line.

Own a home?  Six months out from the end of your IVA (usually a five-year period), your adviser will review your mortgage with you. If you have significant equity, you may need to remortgage it to release it to your creditors.

If you cannot do this, you may need to continue with your IVA payments for 12 more months (depending on circumstances). After six years, your IVA will come to an end, and your remaining eligible debts will be relieved.

Where can I find out more about IVAs?

While there are a number of steps involved in setting up an IVA, it is quite easy to maintain once it goes into effect.  You will find that your finances are much more manageable, and you will finally be able to breathe easy knowing you will not suddenly lose your home or assets.

Before you set up an arrangement to help you pay towards your debts, you should get professional debt advice. IVA Plan can help. Our debt experts specialise in money advice, keep on top of debt trends, and have helped hundreds of people in situations like yours to settle your debts and start afresh.