If you’re living with debt and looking for ways to turn your financial situation around, you may have come across the term ‘IVA’, otherwise known as an Individual Voluntary Arrangement, and wondered what it meant.
In this guide we’re explain what an IVA is, how it works, and how an Individual Voluntary Arrangement can help you regain control of your debts.
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What is an IVA?
An IVA, or Individual Voluntary Arrangement, is a legally binding agreement between you and your creditors – the people or businesses you owe money to – to pay back a portion of what you owe.
IVAs are the most popular debt solution available in the UK. They offer people struggling with unsecured debts, like credit card debts and payday loans, an opportunity to get on top of their finances and make affordable payments towards their debts over an extended period of time.
How does an Individual Voluntary Arrangement work?
An IVA works by allowing you to consolidate all your debts and settle them through a single, affordable monthly payment. You will make a monthly contribution towards your debt, but the size of your IVA payments will be based on what you can afford.
You will make these payments for the length of the arrangement, typically five or six years. During this time, your creditors won’t be able to contact you for payment or attempt to take further action against you.
Under the terms of the arrangement, your creditors will allow you to repay a portion of your debt. Any debt left over once your IVA payment term ends will then be written off, meaning you will be free of any debt included in the agreement.
What kind of debts can be included in an Individual Voluntary Arrangement (IVA)?
An IVA is designed to help people struggling with unsecured debts – meaning debts not secured against an asset like your home or your car.
The following debts are suitable to be included in an IVA:
- Credit card debts
- Store card debts
- Payday loans
- Personal loans
- Gas, electricity, and water bill arrears
- Income tax and national insurance arrears
- Tax credit and benefit overpayments
If you have secured debts to pay off, whether it’s a mortgage or a hire purchase agreement on your car, you will be expected to make your payments as normal in addition to your monthly IVA contribution.
Which type of debt concerns you?
Catalogue & Store Cards
Steps for setting up an IVA
Even if you hadn’t heard of an IVA before now, setting one up to help you deal with your debts is relatively simple. It usually involves the following steps.
Research IVA providers
Taking any decision that will impact you financially should involve some research, and it’s no different when it comes to setting up an IVA.
Because an IVA can only be set up by a licensed debt professional, people usually prefer to work with an IVA company who can provide that service for them. You should try to find an IVA provider who looks legitimate, has positive reviews, and who has helped a significant number of people deal with their debt.
Work with an Insolvency Practitioner (IP)
As we mentioned, you can’t set up an IVA on your own. Instead, you’ll need to work with a licensed Insolvency Practitioner (IP).
An Insolvency Practitioner is a debt professional empowered by the Insolvency Practitioners Association (IPA) to set up legally-binding debt solutions like IVAs and manage them on your behalf.
Most IVA companies (including IVA Plan) will provide you with an IP anyway, but if you’d prefer to arrange your IVA independently then finding an IP is something you’ll need to look into.
Present your IVA proposal to the people you owe money to
Before your IVA can be approved, it needs to be accepted by your creditors, the people who you will be paying via the arrangement.
Your Insolvency Practitioner will work with you to draw up an IVA proposal which outlines the terms of your arrangement, including your monthly payments. The IP will take into consideration your income, outgoings, and regular expenses before coming up with an IVA proposal based on what you can afford.
Once your proposal is ready your Insolvency Practitioner will share it with your creditors and, if a majority of them agree to the terms, your IVA will be approved.
Make your monthly payments
If you’re IVA is approved, all that’s left to do is make your monthly payment. The amount will be taken from your bank account at the same time each month and your IP is responsible for distributing that money amongst your creditors, so all you need to worry about is making sure there’s enough money in your account.
You will typically make your IVA payments for five or six years. As long as you stick to the terms of your arrangement, your remaining debt will be written off once that time has passed and you’ll be free to move on from your debts.
Who will know about my IVA?
People often feel uncomfortable talking about debt, so one of the most common IVA concerns is whether other people will find out that you’re in a debt arrangement.
The good news is that’s highly unlikely.
Individual Insolvency Register
When you enter into an IVA, it will be listed on the Individual Insolvency Register, an online database of all the personal insolvencies that have taken place in England and Wales.
While the register is publicly available, it’s not listed on search engines and is typically only accessed by people with a vested interest in your financial background; mortgage brokers, credit card companies. and other lenders.
As far as your friends, family, employers, and other people you know personally, there is very little chance they will ever learn about your IVA unless you tell them yourself.
How will an IVA impact my credit score?
Any debt solution your enter into will be recorded on your credit history. This will in turn negatively impact your credit rating, because being in an arrangement like an IVA suggests to future lenders that you’ve had trouble repaying credit in the past.
This information will be held on your credit report for a period of six years from the day you are discharged from your IVA, so it may be more difficult for you to access new lines of credit during this time.
That said, not dealing with your debts will arguably impact your credit rating more than using a debt solution, so it’s probably still you’re best option if you’re struggling to repay what you owe.
Where can I get debt advice and more information on IVAs?
Money Advice Service (Money Helper)
Money Helper (previously Money Advice Service) is a Government-backed organisation that is dedicated to helping people with money problems, whether that’s some simple money advice, or further support for more serious problems.
StepChange debt charity
StepChange are a UK charity that focuses on debt support. They can offer advice, guidance, and can even set up a debt solution for you free of charge – though it’s worth remembering that a lot of debt charities don’t have the same capacity as the bigger IVA providers.
At IVA Plan, we’re one of the UK’s biggest IVA providers and have helped thousands of people in your position to deal with your debt.
Our team of specialist debt advisers will get to know your circumstances, and work with you to find a way forward that helps you put your debt behind you.
If you’re ready to deal with your debt, get in touch with IVA Plan today.