If you’re finding yourself struggling to pay your debts each month, then an Individual Voluntary Arrangement, or IVA, could provide just the financial solution you’ve been looking for. An IVA is a formal financial agreement made between you as the debtor, and the companies that you owe money to, usually through an intermediary who will negotiate the terms of an IVA on your behalf.
These Individual Voluntary Arrangements (IVAs) are put in place to allow people who meet the qualifying criteria to pay off their debts in a more affordable way, which also may be spread over a longer period of time. The aim of an IVA is essentially to make the total level and individual repayments of the debt much more manageable, meaning you can pay off what you owe in a timeframe that is more realistic for your personal circumstances. It’s an ideal arrangement for those who have more debt than they’re able to reasonably afford on a monthly basis, or for those whose financial circumstances have changed since they originally took out the debts – for example with the loss of a job, or growing family. Many of those who decide to apply for an IVA report that it’s a significant step towards relieving the strain and anxiety caused by an unmanageable financial burden, and allows them to get back to normality without the ongoing worry.
Frequently Asked Questions About IVA's
Types of IVA
There are a number of different options available to you when considering an IVA, and these can be discussed with you during an initial call which should centre around which IVA option is best suited to your circumstances. The three types are as follows:
Monthly Payments IVA – As it says in the title, this type of IVA will usually consist of a monthly sum which will be payable to one place, allowing you to consolidate debts into one, much more manageable payment. To have this type of IVA accepted, it’s important to take advice as it will need to be proposed to creditors in a way that demonstrates it’s the most you’re able to afford monthly, whilst still being a viably manageable sum that is likely to be adhered to. Equity based IVA – Whilst it may not be as widely used as the monthly payments IVA option, it’s possible to put forward an IVA proposal to creditors based on your share of equity owned in any property. The property is seen by creditors as a financial asset, and would require you to release funds from your property into the IVA for the benefit of the creditors. Lump sum IVA – The quickest IVA available, a lump sum IVA is where a one off payment is offered to creditors for full and final settlement of the debt, and this can usually be completed in just a couple of months rather than a number of years like other IVA arrangements. A lump sum IVA offers creditors a specified ‘pence in the pound’ for the money owed, and, if accepted, a single payment is made to settle the debts.
What are the Benefits of an IVA?
Applying for an IVA has a number of benefits to those who get their applications accepted, the most obvious benefit being that you’ll be able to make lower and more affordable monthly payments towards what you owe. Many people are still not aware of the numerous other benefits of having an IVA, which is why taking professional IVA advice can serve to inform you and answer any further questions that you may have when considering an arrangement. Benefits include:
- Homeowners will usually be able to keep their home, providing they meet the financial commitments of any mortgage payments etc separately to the IVA. This is different to a considerable amount of other financial arrangements that are available, some of which may even leverage your property as an asset to secure against any further defaults. - There aren’t any set up fees for an IVA, meaning that you can be confident that your IVA application will be accepted prior to parting with any more money. Again, some other arrangements can carry costly admin or application fees before you even know whether or not they’re a viable option for you. - The fees that are applicable once your IVA is agreed are able to be included as part of your monthly repayments, meaning that they’re taken into account in the affordability of
What are the risks of an IVA?
Whilst entering into an IVA is a viable and effective option for many of those who apply, having this kind of arrangement does carry some risks. The extent of these will depend entirely on your individual circumstances, and in some instances it may be better for you to take a different route, such as petitioning bankruptcy. It’s important to discuss your options with a trained advisor in order to weigh up the options that are available to you, although we have outlined some of the risks of an IVA below:
- An IVA will only write off any unsecured debts that are included within the arrangement and you may still be left with money owing to creditors who weren’t included in the IVA application, or which are secured against assets such as your home. - If you’re a home owner and you have equity available in your house, you may be required to remortgage your property to enter into an IVA, and remortgaging can often result in a higher interest rate than the original mortgage. It’s also possible that you won’t be able to remortgage if your financial situation has deteriorated to the extent that it’s no longer an option. - If you apply for an IVA and it fails for whatever reason, your creditors may ask whoever arranged your IVA to petition for your bankruptcy. This means it’s imperative that you ensure you’re honest with your IVA advisor from the outset to ensure that your arrangement is definitely affordable and that you’ll be able to meet the payments. - Your credit rating will be negatively affected, and the IVA will be recorded on a public register which is used by prospective future creditors to assess your suitability for lending etc. This will remain on your financial records for some time in a similar way (although not as negatively) to bankruptcy.
How do I apply for an IVA?
No two applicants’ IVA proposals are identical, so its important to take professional IVA advice before you consider proposing an arrangement to your creditors. Whilst it may be the best option for many people, it may not be the best option for you. Once you’ve taken initial advice, there are a few steps to follow and your IVA advisor will be able to assist you at each stage to make the process as smooth as possible, and to maximise your chances of having your IVA accepted.
Step 1 The first step is to make sure you meet the criteria for an IVA proposal. You can use our tool here to check whether you’re likely to meet the requirements. Once it has been determined that an IVA would be the best option available to you and that you meet the qualifying criteria, your IVA advisor or insolvency practitioner may submit a court application, known as an ‘interim order’, which will prevent your creditors from taking any further action against you whilst your IVA is being set up. Whilst an interim order may not be needed, it’s also possible to ‘stay’ or adjourn any legal proceedings that have been issued against you.
Step 2 The second step is to work with your advisor to decide which type of IVA would be best suited to you. They will run through your financial situation with you in more detail, including information relating to your income, savings and assets that you own such as your house and/or car. This information will be used to determine whether a monthly payment plan IVA, a lump sum IVA or an equity based IVA would be most suitable.
Step 3 Step 3 is the set up process of your IVA, and typically your advisor will assist you with everything you need to get the ball rolling. Your advisor will prepare your proposal to your creditors, which will be structured in a standard format and also a report that will be submitted to court. This will include a professional opinion from your advisor or insolvency practitioner advising whether or not they believe the arrangement will work, as well as a full financial statement, the terms you’re proposing for your IVA, and an outline of why creditors should accept the proposal.
Step 4 The final step in the process is for your creditors to either accept or reject your IVA proposal based on the information you have put forward. At this stage a creditors meeting will be held in which your proposal will be put to a vote. If enough of your creditors vote to accept the proposal you’ve put forward, then your IVA will be accepted and the outcome will be reported to the court. It’s worth noting that even creditors who did not vote to approve your IVA are bound to the agreement once it has been accepted overall. It’s important to ensure you’re up front and honest with your advisor about your situation, and that you take the advice that they offer throughout the process as this will give you the maximum chance of your IVA being accepted from the outset.
Will my IVA be accepted?
Generally, the best way to assess whether or not your IVA is likely to be accepted is to consider how a creditor will view your proposal. When considering whether to accept an IVA, the main criteria for creditors is whether they think they will be viably getting more benefit from you entering an IVA than the alternative scenario – which tends to be bankruptcy. Things that might impact this and be taken into consideration are assets that could be brought into bankruptcy proceedings, such as property owned by you that has equity in it. If creditors believe that they’re more likely to get closer to the balance outstanding from accepting your IVA than they would if you petitioned for bankruptcy then they’re likely to accept the proposal. An IVA advisor would be able to discuss the possibility of your IVA being accepted with you prior to making your application, and what you can realistically expect based on your circumstances.
Will an IVA affect my credit?
Whilst they’re not considered to be as detrimental as bankruptcy, an IVA is still categorised as a form of insolvency and so it will be recorded on the Individual Insolvency Register and this, unfortunately, will have a negative impact on your credit file. The Individual Insolvency Register is one of the points of references commonly used by creditors when assessing applications for lending, and your arrangement will mean they’d be less likely to offer you credit, or that you may be subjected to higher rates than you would without an IVA. The IVA will show on your credit profile for a period of six years from the commencement date, and will affect your credit rating for this time. It’s worth noting, however, that non payment of debts and having your finances spiral out of your control would also negatively impact your credit rating, and so it’s important to take specific IVA advice to weigh up all of the options available to you, and the positives and negatives of making an IVA proposal vs the outcome of not having one in place.
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