IVA – Individual Voluntary Arrangement
IVA – Individual Voluntary Arrangement
What is an IVA?
An Individual Voluntary Arrangement, more commonly known as an IVA, is a debt solution designed to reduce debts into an affordable monthly payment.
An IVA is a formal agreement between an individual and their creditors that will combine unaffordable debt repayments into one affordable monthly payment.
It is available to English, Welsh and Northern Irish residents and generally lasts for a period of 5 years, although a longer period is sometimes considered.
IVAs are legally binding, and once approved, all interest and charges are frozen on the debts that are included, and creditors can no longer take any legal action. It is administered by a licensed Insolvency Practitioner, who will handle all direct contact with your creditors on your behalf.
This debt solution enables you to avoid bankruptcy and restructure your debts into the one monthly payment, instead of juggling several. Once all of your payments have been made into the IVA, any remaining debt will be written off.
This solution is only available to those living in England, Wales and Northern Ireland. If you are a Scottish resident, you may find our page on Trust Deeds to be of more use to you.
What kinds of debt can be included in an IVA?
IVAs designed to include unsecured debts such as:
- Payday or bank loans
- Council Tax arrears
- Credit/store cards
- Utility bills
Mortgage debt is unlikely to be included as it is classed as a secured debt (as your home is held as a security against the debt you owe to your lender). Your mortgage payments are considered when calculating your monthly payments, giving you an allowance to continue with these payments.
Your first step is to contact a licensed Insolvency Practitioner, such as Carrington Dean or Creditfix to discuss your financial circumstances.
They will discuss your situation and provide you with all the relevant information needed for you to decide on what debt solution is right for you. They will then help you to create a realistic budget and estimate how much you can reasonably afford to pay each month after all your necessary living costs have been paid.
You can check if an IVA is the most affordable solution for you by using our Debt Assistant to find out potential monthly payments for the different solutions available to you.
The results shown on the calculator are only indicative. Contact details will be requested to discuss your financial situation and go through a detailed income and expenditure to help us give you the best advice possible.
If you decide that an IVA is the right solution for you, the IP will draft up a proposal for you to sign. Once you have done this, the proposal will be sent to your creditors, detailing how much you propose to pay and how much the creditors can expect to receive by the end of the agreement.
Creditors will then be asked to vote to accept or reject the proposal. In order for it to go ahead, creditors representing at least 75% of creditors who vote, must vote in favour of the IVA.
Once your IVA has been approved, creditors are unable to take any legal action against you and all interest and fees will be frozen. All you need to do at this stage is keep on top of your payments.
The IVA will then be recorded on the Individual Insolvency Register and also will be noted on your credit file, where it will show for the duration of the arrangement.
You will also be required to complete a yearly review of your finances and a progress report will be sent to both you and your creditors.
If you are a homeowner, and your home is worth more than what you owe on your mortgage, you may have to remortgage the property to release some of this value to be paid to your creditors.
Once you have made all your payments and completed the term – generally over 5 years – you will then be discharged from the IVA.
A certificate of completion will be sent to you and your creditors. They will then be required to write off your liability for any remaining balances on the debts included in the arrangement.
They will no longer be able to pursue you for recovery of these debts and you will be able to start rebuilding your credit score.
Advantages of an IVA
- Interest and charges are frozen on your debts, so they won’t increase
- You are protected from any legal action or harassment from creditors
- Debts included are written off at the end of the arrangement
- Your home is protected
- It allows you to avoid bankruptcy
- You only have to make one payment each month, which is based on what you can reasonably afford.
Disadvantages of an IVA
- If you do not stick to the T&Cs of the arrangement, you will lose protection from creditors
- Should your IVA fail, your creditors will be able to pursue you for your debts plus any interest and charges they would have received had your IVA not been approved.
- It will be recorded on the Insolvency Register which can be accessed publicly (however, only limited details can be seen, and it will be removed three months after the IVA has ended)
- It may affect the terms of your employment or hire purchase agreements
At Carrington Dean, we understand how easy it is to let debt take over your life, and it’s difficult to know what direction to take.
As one of the UK’s leading debt solutions businesses, our professional team have extensive experience finding the right debt solution for people from all walks of life – matter what financial situation you’re in.
Our expert advisers are well-equipped to give you the best advice possible and provide all the relevant information needed for you to make a decision that’s best for your situation.
Frequently Asked Questions
Individuals must have a minimum debt level of £6,000, but there is no maximum amount of debt that can be brought into an IVA.
It is highly unlikely that your mortgage provider will agree to it being included in the IVA. This is due to your home being held in security against the debt.
Your mortgage payments will be taken into account when your income and expenditure is calculated to allow you to continue to pay for this.
You cannot include debts such as secured loans, rent for your current home, court/traffic fines or child support arrears.
It’s important that you make your IP aware of any debt obligations when discussing your budget so they can be included in your monthly budget.
If you can present a case that shows that your car is essential for work or other purposes, you are likely to be able to keep it.
However, if you have an expensive model, you may be asked to consider switching to a more affordable car. If your car is on finance, you will not be able to include this in your IVA as it is considered to be a secured debt.
An IVA must be set up through a licensed IP who will be able to accurately assess your financial circumstances, deal with your creditors on your behalf and negotiate the amount of money you will have to pay each month.
They will also supervise your IVA for its duration, collecting your payment each month and distributing it out to your creditors.
You are charged fees for the administration of your IVA. However, this is deducted from your monthly payments – you are not required to pay these upfront.
The remainder of your payments is distributed to your creditors.
Simply being in debt will have an impact on your credit rating, dealing with missed payments and struggling with your debt obligations is likely to have a negative effect on your credit score.
Your IVA is noted on your credit file for six years (which is a year beyond when your IVA finishes) and whilst you are in your arrangement you will not be able to obtain further credit or borrow more money. This ultimately will bring your credit rating down.
However, once your IVA has ended, it is important that you contact the three credit reference agencies – Experian, Equifax and CallCredit – and notify them. Once your report has been updated, the IVA will show as being satisfied or partially satisfied until it falls off altogether.
If you have been made bankrupt in the past but have been discharged, you may be eligible.
If your circumstances change for the worse during your arrangement and you are struggling to make your monthly payments, it’s important to contact your IP and make them aware.
They can assess your situation and may be able to negotiate a payment holiday or ask your creditors to lower your payment amount.
You should also contact the IP if your circumstances change for the better. If your disposable income increases or you inherit or are gifted a lump sum of money, the IP will need to take this into consideration, and you may be asked to make additional payments towards your IVA.