In debt and think an IVA might be the right option for you? Read our frequently asked questions to find out more.
IVAs, also known as Individual Voluntary Arrangements, are one of the most common ways in which people in England, Wales and Northern Ireland solve their debt problems.
Entering into an IVA can help you to clear your debts in the following ways -
1. Your debts are restructured so that you only need make a single reduced repayment each month.
2. Interest and charges on your debt are frozen meaning that the amount you owe will not increase.
3. Your IVA lasts for a fixed period of time so you will know exactly when you will become debt free.
4. At the end of the IVA any remaining unpaid debt will be written off by your creditors.
Not everybody qualifies for an IVA and the qualifying criteria are relatively strict. Generally for an Individual Voluntary Arrangement to be an option you will need to meet the following criteria -
Individual Voluntary Arrangements are designed to help if you have high amounts of unsecured debts that you can no longer afford to repay. Unsecured debt refers to any type of debt that isn't secured against your assets. The following debts can be included in an IVA -
There are many types of debt that can't be cleared in an IVA. Debts that cannot be included are -
IVAs are flexible agreements in which there is no legal minimum or maximum monthly payment. The exact amount you pay each month will depend on how much disposable income you have and what payment your creditors are prepared to accept. Generally you will be expected to pay as much as you can reasonably afford. If this amount is high enough to satisfy your creditors then the IVA can go ahead.
Although there is no fixed minimum payment in reality it can be difficult to negotiate an IVA in which you pay less than 20p for every pound you owe. In simple terms the more you are able to pay the greater the chances of your IVA proposal being accepted. It is worth noting that the fees of your appointed Insolvency Practitioner will also need to be covered by the payments you make.
Typically in an Individual Voluntary Arrangement you will make payments for a period of five years. IVAs however are actually quite flexible and how long they last will vary. The exact number of months or years you make payments for will be decided during the initial setting up of your IVA.
Should your circumstances change during the arrangement then you can apply for a Variation Order that if approved can increase or decrease the length of your IVA. For example, should an inheritance mean that you gain access to a lump sum of money you may choose to use this in a full and final agreement.
Yes self employed individuals, whether operating as a sole trader or as part of a partnership, can apply for an IVA. As with any IVA application to qualify you will need to have sufficient levels of debt and be able to demonstrate that you have high enough income to keep up with the repayments.
Read more - IVAs for the self employed
At the end of the agreed repayment period any remaining unpaid debts will be written off by your creditors. Your IVA supervisor will inform the Insolvency Service and your creditors that the arrangement has been successfully concluded.
However a record of the Individual Voluntary Arrangement will still show on your credit file for six years before it is removed.
Your IVA payment is based on what you can reasonably be expected to pay on your current income and essential outgoings. Although you will be expected to live economically you will still retain enough of your earnings to meet essential needs including the cost of food, housing, clothing and child care. You will be left with enough to live on for the duration of the IVA and in circumstances where your income changes you can apply for a Variation Order.
The amount of debt written off in an Individual Voluntary Arrangement varies from case to case. On average an IVA will see 50-60% of a person's debts being written off. In general it is unlikely that creditors will accept an arrangement in which they are being asked to write off more than 80% of the debt.
HM Revenues and Customs consider all IVA proposals on an individual basis and will approve applications where -
For your IVA to be approved you need to be able to demonstrate that you will be able to keep up with your monthly payments. In the vast majority of cases IVA payments will be taken from your income and so if you are unemployed IVAs are unlikely to be suitable. In this case a debt management plan or bankruptcy could be more appropriate.
Individual Voluntary Arrangements are not available in Scotland. The Scottish equivalent of an IVA is known as a Trust Deed. As with an IVA entering into a Trust Deed will enable you to consolidate your debt repayments and to become debt free in a fixed period of time, usually 3 years.
As well as standard Individual Voluntary Arrangements other types of IVA include -
Joint IVAs - these are intended for couples that have shared debts and living costs. They are in fact two separate IVAs but are treated jointly from an administrative point of view.
Full and Final IVA - instead of making a series of monthly payments in a Full and Final IVA a one off partial lump sum payment is made. This type of IVA is quite rare and is only appropriate in cases where you have access to a large lump sum of money but are unable to make monthly contributions.
Trust Deeds - the Scottish equivalent of an Individual Voluntary Arrangement.
No it is not too late. Once your Insolvency Practitioner has prepared your IVA proposal, an application can be made to the court for an Interim Order. This will stop your creditors from beginning bankruptcy proceedings against you.
Royal Exchange can advise you on all aspects of Individual Voluntary Arrangements (IVAs). We offer a complete debt counselling service to people throughout the UK and can advise people whatever their financial circumstances. If an IVA is the best solution to your debts we are authorised to set up and manage it from start to finish.
For answers to your IVA questions call Royal Exchange today on 0800 028 4422 or complete the form to request a call back. Alternatively to find out if an IVA is the right solution to your debt problems use our online debt calculator.