IVA Guide

With UK debt now over the £1 trillion mark, questions have been raised about how easy it is to accumulate debt and the ability of people to repay what they owe. More people now face financial difficulty in repaying debt, more people have begun to seek individual voluntary agreements (IVAs) as a way of avoiding bankruptcy and to solve their ongoing financial troubles.

What is an IVA?
An Individual Voluntary Arrangement - IVA is a formal agreement between you and your creditors where you will come to an arrangement with people you owe money to, to make reduced payments towards the total amount of your debt in order to pay off a percentage of what you owe then generally after 5 years your debt is classed as settled.

Due to its formal nature, an IVA has to be set up by a licensed professional. Once a decision has been made that an IVA is right for you, you will be asked questions regarding your current financial situation. Based on the information you have given, a repayment amount will be agreed with you. An application may then be made to the court for an Interim Order. Once this is in place, no creditors will be able to take legal action against you and a creditor meeting will be arranged to which you should attend. For an IVA to be approved, creditors will be called upon to vote either for or against the arrangement. Most Individual Voluntary Arrangement cases are based around one, affordable, monthly, payment, over a period of 60 months.

The Individual Voluntary Arrangement will be legally binding. As long as you keep up the repayments, when the term of your agreement is finished, you will be free from these debts regardless of how much has been paid off.

During the period of your arrangement your financial situation will be reviewed regularly to see if there has been any change in your circumstances.

How will an IVA help me?
IVAs can help cut debt by over 70% if you are able to afford a lump sum payment or at least £200 a month. Naturally if you are experiencing financial difficulties then you may not be able to pay either and as IVAs don't cover mortgages or secured homeowner loans then this may not be the golden ticket for you.

What does an IVA cover?

An IVA can be used to reduce unsecured debts:

• Store cards

• Credit Cards

• Unsecured Loans

• Catalogue Balances

• Student loans

• Overdrafts

• Remaining balances after home or vehicle repossession

• Commercial debt for which you are personally liable

Does it cost anything to set up an IVA?
Setting up an IVA will require you to pay your insolvency practitioner who will propose your IVA to your creditors. Some practitioners require you to pay an up front fee but the majority include their fee in your agreed monthly payment.

Spend some time looking into different insolvency practitioners as the fees associated with IVAs can be extremely high.

IVAs – what are the benefits?

• With an IVA as much as 75% of your debt can be written off

• You make monthly repayments according to how much you can afford

• Once the IVA has been set up, your creditors cannot bring any other legal action against you.

•You can have a regular UK bank account

• You won’t receive any negative publicity (unlike bankruptcy)

• An IVA may help you to safeguard your property

• Having an IVA does not affect the ability to hold public office

• An IVA does not affect your professional or employment status

• Setting up an IVA enables you to avoid bankruptcy

What are the disadvantages?

As great as IVAs may be, there can be some rather significant drawbacks:

• Usually IVAs are only suitable if you have unsecured loans of at least £15,000

• Your home and assets can still be at risk if the creditors decide they are not excluded.

• If the IVA fails then you may be made bankrupt and the cost of the IVA will be added to the debts.

• You will not be able to borrow any unsecured loans, store cards or credit cards.

• They take several months to organise and can cost over £4,000 to set up.

How do I qualify?

• You will need a minimum outstanding debt of £15,000.

• 75% of your creditors must agree to the IVA terms and repayment schedule.

• If less than 75% of creditors approve the IVA then the IVA will fail and you may have to consider alternative options or even bankruptcy.

• Typically an IVA is suited only to those who can afford regular monthly payments or are able to pay off a single lump sum.

Is an IVA the best option for me?
If you are uncertain whether an IVA is right for you then why not give the National Debt Line a call free on 0800 808 4000, where you can discuss your current situation in complete confidence.