Debt Solutions: Individual Voluntary Arrangement (IVA)
There are several debt solution options available, each with its pros and cons. That’s why we’ve begun a series of blogs, each focusing on a different debt solution. This blog details Individual Voluntary Arrangements, otherwise knowns as IVAs. Below we explain what they are, how they work as well as who they could be suited to. Please note, none of this information is intended to constitute financial advice and should be used for informational purposes only.
What is an IVA
An IVA is a legally binding agreement that needs to be arranged by a qualified insolvency practitioner. Once you enter an IVA, all dealings with creditors whose debts have been included in your IVA will be through the firm administering your IVA, who will act as a middle man. Aside from sending statutory notices, those lenders will not be able to contact you directly and they’ll usually have to freeze all interest and charges on your debt.
Your IVA provider will start by assessing your financial situation including income and outgoings, as well as any savings and all debts in your name. From this they can then work out how much you have leftover, this is known as your disposable income. You will then need to agree to a repayment plan which is usually a monthly payment paid directly to the IVA company. This money is then distributed to your creditors on your behalf, after payment of the fees for arranging and administering your IVA, unless these have been paid upfront.
How long does an IVA last?
Once an IVA is in place, it will usually last for five years. Your Insolvency Practitioner will likely want to review the agreement each year to check you’re still able to afford the payments. They might want to make changes to your repayment amounts if your circumstances have changed such as your income has altered.
IVA pros and cons
As with all debt solutions, IVAs have their positives and negatives to consider. These will generally be decided by your own circumstances such as the amount of debt you owe, your disposable income and any assets.
✔ There is no limit to how much debt can be included in an IVA
✔ At the end of the IVA term, any remaining debt which was included in the IVA is written off
✔ The IVA company deals with all of your creditors for you
✔ You’ll usually be able to keep any assets you own such as property or a vehicle
✔ You can include most unsecured debts as well as utility & tax arrears.
Secured loans such as mortgages can only be included in an IVA if the lender specifically agrees to it.
✗ Any additional income or bonuses you receive during the term of your IVA will be expected to be put towards the debt.
✗ You can’t include court fines, unpaid child support or rent arrears
✗ An IVA might affect your ability to apply for or work in a legal or financial service’s role
✗ You’ll need a steady income to make the repayments, so an IVA may not be suitable for self-employed persons or those on benefits.
✗ You might be asked to sell some of your valuable possessions and put any savings you have towards the debt.
Other debt solutions such as a Debt Management Plan, Debt Relief Order or Bankruptcy may also be something you may wish to consider if you are struggling to manage your finances. If you’re unsure if an IVA or other debt solution is suitable for you, you can get free, impartial advice from a charity such as StepChange. They will be able to discuss your financial situation and help choose the best option for your own individual circumstances.