An Individual Voluntary Arrangement (IVA) can be a way to deal with debt problems, but it can be expensive with average fees around £5000 and there are risks to consider.
In this short guide we explain how an IVA works and when it may be a suitable solution to your debt problems. There is a lot of FREE advice available and we recommend getting full advice before you make a decision.
An IVA is a formal and legally binding agreement between you and your creditors to resolve your debt issues over a period of time. An IVA freezes debts and allows them to be paid over a set period, usually 5 years, any money still owed after this period is then written off. It is approved by the court and your creditors are bound by it.
An IVA must be set up by a qualified person, called an insolvency practitioner. This will be a lawyer or accountant. The insolvency practitioner will charge a fee for the IVA. Average fees are around £5,000. The insolvency practitioner then deals with your creditors throughout the life of the IVA.
It is important to take proper debt adviser before taking out an IVA. There are lots of free advice services available across the UK and we have provided a link at the end of this article
Income and Expenditure needed for an IVA
To arrange an IVA, you must have some spare income each month to pay your creditors, usually at least £100. Your creditors are unlikely to accept an IVA if your payments are less than that. However, if you don’t have much spare money from your income you maybe able to sell something to raise a lump sum to pay your creditors. If your income changes from month to month an IVA is probably not right for you.
How do the repayments work?
If you decide to enter into an IVA, you will work out a repayment plan with the insolvency practitioner. The repayment plan is put to the creditors, if it is enough and they agree you will then pay back a set amount each month, usually for five years. The monthly repayments are paid directly to the insolvency practitioner, after they have deducted their fees they will then distribute the money to the creditors.
Always check the costs
IVAs have high costs. This is because they have to be set up by a qualified insolvency practitioner. Costs vary but are around £4000 - £5000 on average. You will usually pay the costs in instalments as part of your IVA payments. If you go to a debt management company for an IVA, find out about how much they will charge before you decide. A debt management company is likely to be more expensive because they charge a fee on top of the insolvency practitioner's fees.
Consider alternatives to an IVA
There are other alternatives to deal with debts which may be more suited:
debt management plan - if you have some spare income each month to pay your creditors and they will accept the plan the fees vary but are likely to be significantly lower than an IVA
debt relief order - if you don’t own a home, your debts are £20,000 or less and you have no assets or spare income the fee for a debt relief order is only £90
bankruptcy - if you don't own a home, or your home is worth much less than the loans secured on it (negative equity) and you have no assets or spare income
Things you should consider
An IVA can affect you in lots of ways:
home - if you own a home, you may have to re-mortgage it at the end of the IVA
possessions - if you own a car or other large items, you may have to sell them to pay money into your IVA
savings - will probably have to be used to pay creditors,
personal pension - may have to use that money to pay your creditors as it counts as income
credit rating - an IVA will affect your credit rating which may make it more difficult to get credit.
Debts that can be covered by an IVA
IVA can help pay off many common debts, including;
overdrafts
personal loans
catalogue debts
council tax arrears
hire purchase debts
mortgage shortfalls
credit and store cards
money owed to HMRC (eg income tax or National Insurance contributions)
Debts that can not be covered by an IVA
There are some debts an IVA can not cover;
student loans
magistrates’ court fines
certain types of car finance
child maintenance or child support arrears
mortgage and rent arrears
[Technically mortgage and rent arrears and other secured loans against property can be covered in an IVA, however creditors have to agree to this and often they won’t do so].
IVA Checklist
An IVA can be a solution to debt problems, but it is not right for everyone.
An IVA may be appropriate for you if:
you have at least two separate debts
you have debts that add up to more than £10,000
you have at least two different creditors
you don't want to have to deal with your creditors directly
you have enough money spare each month to make IVA payments
An IVA may not be right for you if:
your circumstances are likely to change, your income is irregular, or you are on a fixed term contract
your debts are less than £10,000
you do not have any spare income or a lump sum available to pay creditors
you get support for mortgage interest (SMI) - your SMI payments might stop and you might have to pay back SMI
you work as an accountant or solicitor; terms and conditions of your employment contract may prevent you from continuing to work if you get an IVA
BEFORE YOU DO ANYTHING GET ADVICE
It is important to take proper debt adviser before taking out an IVA. This is because the debt solution which is best for you depends on your personal circumstances and an IVA might not be the best solution for your circumstances. There are lots of free advice services available across the UK. The Money Advice Service is a FREE and impartial money advice service set up by government they provides a comprehensive list of sources of free debt advice;