For consumers struggling with debt in England, North Ireland, or Wales, few solutions are as broadly recommended as individual voluntary arrangements, also known as “IVAs.” An IVA is a formal debt restructuring plan aimed at help you to get back on your feet for a fresh start. With an IVA, you do need to continue paying on your debts for the next five to six years, but after that, most of your remaining debts will be written off and you will be able to move on with your life.
Still, any time you are going to enter into a formal debt arrangement, you need to make sure it is the right one for you. An IVA is the ideal debt solution for many insolvent individuals throughout the UK, but that does not make it the best fit for every situation. You likely have a lot of questions about how an IVA will affect your life. This article will go over as many of those questions and answers as possible.
How Will an IVA Impact My Debts and Monthly Bills?
Any discussion about the impact of an IVA on your life should start here. The whole point of an IVA is to get you back on track. When you request an IVA, your insolvency practitioner will meet with you to determine how much you are capable of paying each month on all of your combined bills and debts.
After that, the practitioner will draft up a plan and present it to your creditors. If 75% of them agree, the IVA will go into effect.
At that point, you will pay one lump sum every month on all of your debts. You will only pay the amount you can afford after your ongoing monthly bills are accounted for. That means you will no longer slip deeper into debt. You will start climbing out at a rate that you can afford. Whatever is left at the end of the IVA will typically be written off.
Key Takeaway: On an IVA, you find that your monthly bills are much more manageable. You will continue to owe on your current bills, and the amount you can afford to pay on your standing debts will be calculated from there. You will never have to pay more than you can afford.
How Will an IVA Impact My Credit Rating?
When you enter into an IVA, that is a formal insolvency arrangement. That information is put on your credit reference file, and also entered into the public Individual Insolvency Register. Those are both places that creditors will look to see if you are a sound investment.
So will your credit take a hit? Initially, yes, and you will probably have a hard time qualifying for short-term debt as a result.
The good news here is that you probably are already in that situation to begin with, or close to it. The longer you continue sinking into debt, the more your credit rating will suffer.
An IVA does negatively impact your credit rating at first, but over time, that will turn around. This is an arrangement which helps you out of debt, so eventually you can get back to being current with all of your bills. That will make your credit rating rise.
Short-Term Impact: Over the short-term, an IVA will result in a decline in your credit rating and difficulty qualifying for loans.
Long-Term Impact: Over the long-term, an IVA will give you a fresh slate. This should result in a rise in your credit rating and a better chance at qualifying for loans over the long run.
How Will an IVA Impact My Reputation?
As just mentioned, an IVA does mean that your name will be recorded in the Individual Insolvency Register. That information is available to the public. Anyone who deliberately looks up your name in the register will see that you are insolvent. Not only that, but they will be able to view details on your arrangement.
Thankfully, your IVA will not be broadcast to the world in any other way. There was a time in the past when it was common for bankruptcy notices and the like to be published in newspapers, but that is no longer a common practice. There will be no newspaper notice telling everyone you know that you are insolvent.
So unless someone actually has cause to already believe you are in debt and checks the register, it is unlikely that anyone will ever know.
Key Takeaway: IVAs are made public through the Individual Insolvency Register, but someone would have to deliberately search for your name in the register to find out you are insolvent.
How Will an IVA Impact My Qualification for Future Loans?
If you are concerned about your credit rating while you are on an IVA, you may be concerned because you are thinking you might need to take out a new loan sometime over the next five to six years.
You may be surprised to learn that you can, in theory, take out a loan while you are on an IVA, but it will typically only be a small one. If you need to borrow less than £500, you can do so without asking permission from your insolvency practitioner (assuming the loan is approved by the creditor).
For amounts in excess of £500, you need to get written permission from your insolvency practitioner. The only exception is if the loan is needed to pay off utilities.
All of that being said, because your credit rating will take a hit while you are on an IVA (and probably is already very low to begin with), you probably will not qualify for a short-term loan.
So while you can theoretically get a loan on an IVA, in all likelihood, you won’t.
While this may make you nervous, think for a moment about what an IVA does. An IVA consolidates your monthly bills and reduces the amount you owe so that you can actually keep up each month.
That means you are far less likely to need a loan while on an IVA. And in the future, when your IVA is complete and your credit rate begins climbing again, you are more likely to qualify for a loan over the long term.
Key Takeaway: You probably will not qualify for most short-term loans while on an IVA because of your low credit. If you do qualify for a loan under £500, you can get it without your insolvency practitioner’s permission. For loans above that amount, you need written permission.
How Will an IVA Impact My Home?
This question is a major concern for many people considering an IVA. It is also one of the more complex questions about the impact of an IVA, but the most important point is this:
You will probably not lose your home.
If you have a lot of equity in your home, you may need to release it to help pay back your creditors. Usually your home equity is evaluated in the last six months of your IVA. If your practitioner determines you have enough equity to significantly pay off your remaining debts, you will usually be ordered to remortgage to release that equity. If you cannot remortgage, you will simply be asked to make payments for an additional 12 months (making the IVA six years instead of five).
What if you have so much equity in your home that it could pay off all of your debts? You likely will not qualify for an IVA at all, since you are not technically insolvent. You will be expected to remortgage on your own or find a different solution.
What if there is no substantial equity in your home? You will not be asked to remortgage it.
Finally, one last useful thing to know is that you generally cannot include the mortgage itself in your IVA.
Key Takeaway: If you have significant equity in your home, you may be asked to remortgage it to release that equity. If you do not, there should be no impact on your mortgage. You should not lose your home on an IVA.
How Will an IVA Impact My Automobile and Other Property?
If you are concerned about how an IVA will affect your home, you likely are also worried about how it will affect your automobile and your assets (jewellery, electronics, and other valuables).
If you are weighing an IVA against bankruptcy, you already know that under bankruptcy, automobiles and assets are usually forfeit.
That is not the case with an IVA. With an IVA, your automobiles and assets are generally safe. Vehicle owners are usually only asked to sell their automobiles if they own luxury cars. This is extremely rare, and in general, you will not need to worry about your cars.
What about the rest of your assets? That is very much up to you. You may request that your assets not be considered in the offer that you are making to your creditors, but if your assets include luxury property, that will make it less likely the IVA will be accepted.
So, for example, if you own valuable estate jewellery which could make a big difference paying off your creditors, you may include it in the offer or not.
If you choose not to include these kinds of assets, it is best to provide a sound reason (sentimental value is usually acceptable).
Key Takeaway: You will usually not lose your automobile or personal assets with an IVA, and you are very much in control of the situation.
How Will an IVA Impact My Job?
One of the biggest concerns that many people have about an IVA is whether an IVA will impact their employment status. Will you lose your job just because you tried to consolidate and expunge your debts?
This is a legitimate concern, but not nearly as great a concern as it would be if you were applying for bankruptcy.
There are some occupations where employers may have a rule against employing an insolvent person. One example would be a position like an accountant. Since you are responsible for making financial decisions in a job like that, an employer is not going to want someone who poorly managed their own finances.
Positions that involve authority may also be affected. For example, if you are a police officer or you work in the prison service, your insolvency could be seen as a negative by your employer.
Will your employer find out you are insolvent? That depends. If your employer for some reason is suspicious and checks the Insolvency Register, then yes. Otherwise, it is unlikely to come out.
The exception would be employers who run regular checks. If your employer follows this policy (or if you think they might), then you should definitely disclose the IVA before they discover it on their own. This may even be in your employee policy handbook.
If in doubt, you probably should ask about it before you apply for an IVA. That way you will be absolutely sure that an IVA will not affect your employment.
Key Takeaway: Most occupations will not be affected by an IVA. Financial positions and positions of authority may be, however, so it is best to check with your employer.
How Will an IVA Impact My Budget?
While a lot of questions here have answers which could be either positive or negative depending on your situation, this area is a definite positive!
When you are on an IVA, your monthly budget will be much more manageable. You will continue to pay on your current bills (which cannot be included in the IVA). Any money that is left over after reasonable living expenses will go to your creditors—and not a dime more.
That means you can go about your business without worrying each month about whether you can afford to keep your heat, water and power running. You will no longer have to go hungry or ask yourself which bill you should sacrifice to pay on another. You will finally be able to keep up with everything!
Key Takeaway: You will be living on a tight budget on an IVA, but you will finally be able to afford to keep up with your bills.
How Will an IVA Impact My Daily Life?
The benefits of an IVA go far beyond financial advantages. Think about the emotions that you experience on a typical day right now. We do our best to stay strong in the face of adversity, but that does not change the fact that every day is a challenge. Each day we ask ourselves whether we are about to lose everything we have worked so hard for—our home, your cars, our possessions, our safety, and even the ability to care for our families.
An IVA will not only restore financial security to your daily life, but it will also allow you to finally throw off the shackles of fear and enjoy some much needed peace of mind. You will no longer have to put up with endless threatening phone calls and letters from your creditors. You will not stay up at nights wondering if this is the month you will end up on the streets.
Key Takeaway: An IVA allows you to finally get back to living your life with peace of mind. You can focus on your work and take care of your family without fear.
What Will Be the Long-Term Impact of an IVA?
While this article has focused on the short-term impact of an IVA on your life, the most important thing to consider is how an IVA can transform your long-term future.
In the long run, successful completion of an IVA will:
- Help you clear the slate of debt.
- Learn how to make more responsible financial choices in your future.
- Bolster your reputation, financially and professionally.
While there are some short-term tradeoffs for an IVA, they are quite small compared with the short and long-term benefits. Completing an IVA gives you nothing short of a fresh start in life. So long as you have a reliable income and can commit to a five-year process, an IVA is quite likely the right debt solution for you.
Still not sure whether an IVA is the best choice for your circumstances? To speak with a licensed insolvency practitioner, call IVA Plan today. We will go over your situation and answer any other questions you may have about how an IVA will impact your life.