If you are struggling to afford your monthly bills and sinking ever deeper into debt, it is time to make a change. In some cases, that entails a formal debt arrangement. For customers located in England, Wales, or Northern Ireland, one of the best and most broadly applicable solutions is an individual voluntary arrangement (IVA).
What Is An IVA?
An individual voluntary arrangement is a formal agreement with your creditors. That means it is legally binding. During your IVA, you pay a monthly lump sum to your IVA company, which then distributes that money amongst your creditors. You pay only what you can afford after reasonable monthly living expenses. After a period of five to six years, most of your remaining debts will be written off.
What if your situation changes and your income goes up or down during the IVA? In most cases, it can be adjusted to fit your new needs.
This makes an IVA an excellent, flexible solution for customers in diverse situations. This is a chance for you to leave the past behind and start over with a clean slate.
How Do You Know if an IVA Is Right For You?
To determine whether an IVA is the right solution for you, you will need to consider the requirements as well as the pros and cons.
- You must have regular, consistent income, including at least £100 that you can pay to your creditors each month. If your income varies a great deal or is less than that, you will not be able to make your monthly payments.
- You must owe at least two debts to at least two creditors. Your unsecured debts need to total at least £10,000. This is not a legal requirement, but creditors are not likely to agree if your debts are less than that. Plus, an IVA usually costs around £5,000, so it does not make sense to get an IVA if your debts are much lower.
What about assets? There are no requirements. You may sell off assets to help pay off your creditors; this may increase the likelihood of them accepting your proposal. But this is not something you need to commit to. You can even request that your assets be left out of the proposal entirely.
Again, you need to be located in England, Wales, or Northern Ireland. If you are not, you will need to choose another debt solution.
One more thing worth noting is that an IVA is designed largely for your unsecured debts. Examples include credit card bills, lines of credit and personal loans, business loans, overdrafts from your bank, store card bills, building society loans, charge card bills, and catalogues. You can also include text debts, utilities debts, and council tax arrears.
Debts you are forbidden from including in an IVA include child support, student loans, magistrates’ courts fines, and court-ordered maintenance arrears.
Meet the basic requirements? Great. Now let’s briefly glance at the pros and cons.
- You pay only what you can actually afford each month to your creditors for the duration of the IVA. That amount is calculated after reasonable monthly living expenses.
- Everything is paid each month as lump sum. This keeps everything simple.
- You only deal with the IVA company after your IVA goes into effect. You do not need to deal with your creditors directly anymore.
- Your creditors can no longer take legal action against you.
- Your home will be safe (no one will seize your house, vehicles or assets to pay off your debts).
- If you are self-employed, you can continue to operate business as usual while you are on an IVA (with bankruptcy, you are required to stop and start over once the process is complete).
- While there are fees, they are built into the lump monthly sum that you pay.
- After the IVA is complete, the remainder of your debt will be written off (excluding non-eligible debts).
- If you own significant equity in your home, you will not be forced to sell it, but you may be required to remortgage it in the last year of the IVA (if you do not own significant equity in your house, the term of the IVA is simply extended from five years to six). If you have to remortgage, there is a chance that it will be at a higher interest rate.
- Your credit rating will take a hit. This however is a temporary drawback. Over the long run, your credit rating will improve since you will recover from insolvency and be current on your bills going forward.
- The IVA will be recorded publicly. It will not however be publicised. Someone would have to actually look you up to find it.
- There are some jobs you cannot hold with an IVA, but most professions will not be affected.
- You must have a regular, steady, reliable stream of income and enough spare monthly income to make monthly payments.
How We Can Help You
Now that you are familiar with the advantages and disadvantages of an individual voluntary arrangement and you know the requirements, you probably have some idea as to whether an IVA might be the right debt solution for you.
Debt solutions are complicated, and chances are good you still have a number of questions and concerns. IVAs are the best solution for many customers throughout England, Northern Ireland, and Wales, but are not ideal for everyone. If an IVA is not a fit for you, there may be another debt solution which is.
At IVA Plan, we have advised thousands of customers in numerous different life circumstances. Our licensed insolvency practitioners can help you review your situation and figure out whether an IVA is the best fit for you. If it is, we can draft a proposal to your creditors. If not, we can help you find the solution which is ideal given your unique situation. Whether you ultimately decide on an IVA, bankruptcy, DMP, or another debt solution, we can help you take the next steps to set up your arrangement.