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What Is An IVA (Individual Voluntary Arrangements)?
An IVA can be a great, positive way to help with your debt. Allowing you to continue living your life without the stress of being chased by your creditors
An Individual Voluntary Arrangement (IVA) is a debt solution where you agree with your creditors to pay all or part of your debts. This agreement is set up and managed by an Insolvency Practitioner (IP), who will receive an agreed monthly payment from you and will divide it amongst your creditors.
This agreement allows you to write off up to 81% of your total debt based on government legislation and will often give you a greater level of control than bankruptcy.
Once your IVA has been agreed and set up, your creditors can no longer take action against you and won’t be able to contact you, but it will affect your credit rating for six years, making it difficult to get further credit during this period. Your details will also be placed on The Register of Insolvencies, which is a public record, while you clear your debts.
For the duration of your IVA, all fees and interest relating to your debt is frozen and once completed, the remainder of your debt is written off, allowing you to begin again, debt free.
This agreement is available to residents of England, Wales and Northern Ireland. If you live in Scotland, then you could pursue an agreement called a Trust Deed to help you with your debt.
You could have 81% of your debt written off.
Do I Qualify?
In order to qualify for an IVA, you must meet the following criteria:
Have £5000 or more unsecured debt
Owe money to two or more creditors
Live in England, Wales or Northern Ireland
Have a regular income and be able to meet a monthly payment of at least £85.
What Debts Can Be Included?
The following debts can be included:
Debts relating to overpayments of benefits or tax credits
Debts to friends or family
The following debts cannot be included:
TV licence Debt
Child Support Arrears
What Other Impact Could An IVA Have On My Life?
When considering an IVA, it is important to think about whether you own any property or whether your career could be affected.
When applying for an IVA, your Insolvency Practitioner will consider any equity you may have in your property and take that into account. If you sold your property, could that be enough to cover your debts? The IP will consider if you share the equity with another individual, but if your share is above £5000 you could be asked to re-mortgage your home and to put 85% of that equity into the IVA.
It is important to note, that you will never be expected to sell your property.
It is important to be aware that some professions expect you to declare that you are entering into an IVA agreement to your employer. It can be a good idea to check your employment contract to see if this applies to you.
If you work as an accountant or solicitor, in the police, prison service or fire service, as a bank clerk or a person in a position of financial responsibility, then this could affect your job.
The vast majority of professions are not impacted by an IVA.
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Can Creditors Take My Possessions?
When you and your Insolvency Practitioner are arranging your IVA, you can decide which assets to include or exclude. Your IP may ask you to sell any items you choose to exclude, but you can choose whether or not to consent to this.
The following items would be deemed essential and will never be included:
Items related to children e.g. pushchairs etc.
Electrical equipment e.g. TVs, computers etc.
Kitchen equipment e.g. white goods
Medical equipment e.g. wheelchairs
The following assets can affect your IVA and should be declared to your IP:
Managing Your IVA
Once the IVA is set up, both you and your IP still have a role to play. For the duration of the IVA, you and your Insolvency Practitioner will be expected to do the following:
Manage your monthly payments
Share your payments between your creditors
Keep the IP up to date with your financial circumstances and inform them of any changes
Make your payments on time
Submit annual documentation to review your circumstances
Will I Need To Pay Any Fees?
Setting up an IVA does incur some costs; however, you will not be expected to pay anything up front at the beginning of the arrangement and there will be no surprise costs at the end of the arrangement. All costs are deducted from your monthly payments as you go along.
The fees are as follows:
Nominee Fees: This is usually a minimum of £1000 and covers the arrangement of your IVA agreement, including the assessment of your financial situation and the process of reaching an agreement with your creditors. This also covers any administration costs.
Supervisor’s Fees: This can be approximately 15-20% of your monthly payment or it could be charged as a one-off fee. This covers the ongoing supervision and management of your IVA, including distribution of your payments to creditors.
Disbursements: Usually approximately £1200, this covers costs paid to third parties e.g. software licences, insurance and regulations.
Are There Different Types?
Alongside a typical IVA for an employed person, there are several different types of IVA to consider, depending on your personal circumstances:
IVAs for the self-employed work in a very similar way to a typical IVA, where an Insolvency Practitioner will arrange and agreement of monthly payments that you can afford. There are, however, a few differences.
Self-Employed IVAs can often be arranged in a way that allows for greater flexibility across a year. This can be good news for businesses that rely on seasonal income. A cash flow statement will need to be produced so the IP can understand your business and what you can afford.
If your business relies on Business Credit to operate during the term of the IVA, then this can be pre-agreed with your creditors. You creditors may have specific criteria that they will require you to follow to maintain the agreement.
A business may need ongoing trade with one of the creditors it has fallen into arrears with. Under these circumstances, certain Trade Creditors may be excluded from the IVA agreement, so as not to affect future business relations.
Couples with a combination of individual and joint debts can set up individual IVAs which include all their debt however, once these are agreed, they can be administered jointly, allowing the couple to pay one affordable monthly payment.
Full and Final IVAs
This can be a great option for those who want to make a one-off payment to creditors as a final settlement.
This can be an appropriate option for those with adequate savings or those who are in the process of receiving sufficient funds due to the sale an asset.
This can also be an option for those with friends or family whoa are prepared to provide the funds to cover the total amount of the IVA.
Can You Cancel?
It is possible to cancel an IVA, however if you are considering this course of action, you must discuss this with your Insolvency Practitioner.
If you choose to cancel you should consider the following:
You must cancel in writing to your IP. You will receive notice of its termination and the IVA will fail.
Your debts will no longer be written off and you will need to recommence their repayment with your creditors. It is Essential that you contact your creditors as soon as possible to arrange this
You will also need to pay your IVA provider for their services so far.
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What Are The Advantages?
There will be no upfront or surprise fees.
You unsecured creditor will no longer be able to contact you or take any action against you.
Once the IVA is agreed, creditors who voted against it are still bound by it.
All charges and interest relating to the debt is frozen.
You will make one single payment each month.
If your financial situation changes you could be eligible for a payment holiday or for the terms of the IVA to be adjusted.
At the end of the IVA, all remaining debt will be written off
Your home will not be at risk as a result of the IVA
What Are The Disadvantages?
Only certain debt can be included in the IVA
Creditors may not agree to the IVA
Your spending may be restricted during the agreement
If you have equity in your property, then you could be forced to re-mortgage, release the equity and have it included in your IVA
If you receive funds greater than £500 as a result of inheritance or other such circumstances during the terms of the IVA, then you will need to inform your IP who will introduce them into your arrangement
If you fail to make payments, then your IVA could fail
If your financial situation changes then your IP could request an amendment to your arrangement with your creditors. If they refuse to comply with this, then your IVA could fail.
IVAs are added to the Insolvency Register, which is a public record
An IVA will have a negative impact on your credit rating for six years
A failed IVA could lead to you being made bankrupt.
An IVA has proven to be an extremely effective debt solution for many people in the UK, however it is important to get a clear idea of how it may or may not affect your life. Employment In the vast majority of cases, having an IVA will have zero effect on your job. There is no law