IVA Pros and Cons

What is an IVA?

An IVA (Individual Voluntary Arrangement) is a formal agreement made between the person in debt and their creditors. Once you enter into an IVA your creditors can no longer take further action against you to recover any outstanding debts. All interest and charges associated with your debts are frozen. An IVA allows you to make affordable payments to your debts, usually over five or six years. At the end of your IVA any unsecured debt left is written off.

Pros of an IVA

Cons of an IVA

▪️You make affordable monthly payments, usually over five or six years

▪️If you’re a homeowner you’ll usually be able to keep your home, as long as you maintain the mortgage payments and any secured loans on your property

▪️There are no set up fees to be paid for an IVA

▪️There are fees once your IVA is in progress, but these will be included in your monthly repayments and are set by your creditors

▪️If you have a lump sum to offer, this can be paid as a one-off ‘full and final’ settlement, or a combination of a lump sum payment followed by monthly payments

▪️Once you’ve made your final payment any remaining unsecured debt is written off and your creditors can’t harass you for payments

▪️If there’s equity in your home, you’ll need to try to re-mortgage which may result in a higher interest rate

▪️If you’re unable to re-mortgage you can make a maximum of 12 extra payments or a third party can offer a sum equivalent to the equity

▪️If your IVA fails, creditors may request the supervisor of your IVA petitions for your bankruptcy

▪️Your credit rating will be negatively affected

▪️Your creditors can choose not to approve your IVA

▪️At the end of your IVA, only unsecured debts included will be written off, any not included will remain outstanding

▪️Your IVA will be recorded on a public register

▪️Once your IVA is set up you may be on a tight budget until your IVA comes to an end

How does an IVA work?

All IVAs are set up and managed by an Insolvency Practitioner (IP). An IVA is a form of insolvency that can potentially right off up to 90% of your debts and it is also an alternative to bankruptcy.

In an IVA a single payment is agreed with your financial situation taken into consideration. The payment is then divided between the unsecured creditors over a set period of time (usually five years), after which any remaining debts are written off.

Once you enter into an IVA (individual voluntary arrangement) your creditors are legally bound by the terms and conditions imposed by an IVA. These include stopping to take any further action or contacting you directly.

Whilst there are no legal maximum or minimum amounts you must owe to get an IVA, usually, you must owe at least £5,000 to get your creditors to agree to the IVA. You can owe this amount across more than one debt, with more than one creditor.

At the end of your IVA, any debt remaining will be written off.

An IVA is open to residents of England, Wales, and Northern Ireland. Scottish residents can find support in the form of a (PTD) Trust Deed or also known as a Protected Trust Deed.

Click here for more information on the process of an IVA

Debts included in an IVA

▪️Credit cards

▪️.Business loans

▪️Personal loans

▪️Car finance

▪️Court debts

▪️Payday loans

▪️Overdrafts

▪️Catalogues

▪️Store cards

▪️Utility bills

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IVA and Mortgages

If you own your home, you will almost certainly be asked to get a valuation on your house in the last year of your IVA. If remortgaging the house would raise more than £5,000, you will be asked to remortgage it and any money raised will be put towards paying back your debts. You will not have to sell your home. If remortgaging would extend the mortgage beyond its existing term, or put you beyond the state retirement age when it ends, you will not be expected to remortgage the property.

If you can’t remortgage your house for any reason (refusal by the bank, or complications with a jointly owned property, for example), you will have to pay your usual monthly payments under the terms of the IVA for an additional year.

It is possible but unlikely that you will be able to keep your home out of the IVA and thus avoid remortgaging it. If your insolvency practitioner feels that you will be able to pay back enough of your debts without including your house in your IVA, they may propose that it be excluded from the IVA when negotiating with your creditors, but this rarely happens.

An IVA is a preferred option by many homeowners as your asset is protected whereas the alternative of bankruptcy you would in most cases be asked to sell you home.

If you rent your home, nothing will happen as long as you keep paying your rent but we would always advise for you to check your tenancy agreement before entering any agreement.

Missing or failing IVA payments

Once you have missed 3 payments or the equivalent then your practitioner will send you a ‘Notice of Breach’. Normally you will be allowed between one and three months to correct the problem by explaining the missed payments and paying as soon as possible. Once you do this, no more action will be taken against you.

Talk to your practitioner as the terms of your arrangement may be changeable but they can also terminate your IVA or apply to the court to make you bankrupt.

You should always speak to your IVA provider as they will be able to help you in such a situation.

Notice of breach

If you miss a payment your Insolvency Practitioner (IP) will probably send you a formal notice of breach. This will ask you to explain the reason for the breach and potentially how to put it right. Putting right a late payment would mean paying it as soon as possible.

Most arrangements will give you up to three months to respond to the notice. If you do this, the IP will not take any more action against you but if you do not do this you could face severe consequences such as your IVA being cancelled

What if I can't put it right?

If you don’t put things right, the IP will take the following steps:

▪️Changing the structure, if you have had a change in circumstances and that is the main reason for falling behind on your payments then your IP can repropose your IVA with a new monthly payment but you must be able to show evidence of a change in your financial circumstances to your creditors 

▪️End your IVA, your IP can terminate your IVA once this is done you will be provided with a certificate of termination

▪️Your IP can apply to the courts to make you bankrupt

If you feel your circumstances are getting worse and your IVA payments have become unsustainable please contact your insolvency practitioner or our team for further support. 

IVA FAQs

What is an IVA?

IVA or Individual Voluntary Arrangement is a formal agreement made between the person in debt and their creditors.

An IVA agreement allows you to consolidate all your debt into one affordable monthly payment to clear your debt over a fixed period of time, An IVA will usually last five years, after which your debts are written off.

Whilst there are no legal maximum or minimum amounts you must owe to get an IVA, usually, you must have a debt of at least £5,000 to get your creditors to agree to the IVA. You can owe this amount across more than one debt, with more than one creditor.

An IVA stops your creditors taking further action against you to recover your debt, We negotiate with your creditors throughout the IVA, meaning that you will no longer have to deal with demands for money or threats from your creditors. Learn More

Who can get an IVA?

An IVA (individual voluntary arrangement) is normally only suitable for people who are struggling to maintain payments to their current debts and have a regular income.

In order to get an IVA, you must have spare income after you have met your essential living costs each month.

Your creditors will be obliged to agree to an IVA if you meet the other criteria needed to get an IVA plan. Your insolvency practitioner will be able to offer you more specific advice once they know your circumstances.

In order to qualify for an IVA, you must reside in England, Wales or Northern Ireland. You will also need the minimum requirements:

 Have £5,000 or More of unsecured debt

 Owe money to two or more creditors

 Live in England, Wales or Northern Ireland

 Maintain a payment of a minimum of £70 per month

Which debts can you include in an IVA?

All unsecured debts can go into an IVA. Here are some examples of the debts you can include:

Credit cards – Here are a few examples: Vanquis, Barclays, Natwest, Lloyds, HSBC, Tesco, Capital One

Unsecured loans – Barclays, Lloyds, Tesco, Wonga, Adverse Credit Loans Apply now

Payday Loans – Wonga, Lending Stream, Amigo, Satsuma, QuickQuid

 Catalogue and store card debts

 Credit Cards

 Personal Loans

 Overdrafts

 Gas, electricity, and water bill arrears

 Tax credit/ benefit overpayments

 Debts to family and friends

 Other outstanding bills

Which debts are not included in an IVA?

 Mortgages are protected (shortfalls can be included as unsecured debt)

 Other secured loans

 Hire purchase agreements (shortfalls can be included)

 Debts incurred through fraud

 Court fines (some can be included)

 TV license arrears

 Student loans (some can be included)

 Child support arrears

What are the advantages of an IVA?

No upfront fee’s

  It’s affordable, You only pay back what you can afford and normally only an agreed percentage of your debts

  You make only a single payment each month which is distributed to creditors on your behalf.

  You will be debt-free in a set period of time, normally 5 years

  Once your IVA is approved, All your creditors must agree to the IVA. Including the terms and conditions attached to an IVA

  By law, all interest and charges are frozen as long as you maintain your payments

  Your creditors will stop calling, Once enough of your creditors agree to an IVA at least 75% in value of the creditors will need to vote in favour

  Legally binding this means all creditor action, contact and demands will stop once the IVA has been approved

  You won’t be forced to sell your home, Your home is a protected asset in an IVA

What are the disadvantages of an IVA?

IVAs are an expensive way to deal with problem debts. Beyond the insolvency practitioner’s fees, which can be very high, in order to complete your IVA you must make regular monthly payments for around five years. If your circumstances are likely to change or you don’t have a predictable source of income an IVA is probably not right for you.

You may have to sell more expensive assets (like cars, valuable jewellery, or any property that isn’t your family home), and in some cases you may have to remortgage your home at the end of your IVA.

Some other disadvantages of an IVA are that you will find it more difficult to get credit if you’ve had an IVA, which can affect things like catalogue shopping and obtaining a mortgage, as well as the more obvious things like getting a personal loan or credit card.

Certain professions are also not allowed to practice if they have gone through an insolvency procedure, which includes IVAs. Common professions covered by these restrictions are accountancy and legal services, but you should check your contract of employment and with any professional bodies to find out if you may be affected.

 IVAs can be refused, Your creditors can refuse your IVA proposal but in most cases, we can negotiate with your creditors to get your IVA approved

  An IVA is a formal agreement, Therefore you need to make sure you comply with the terms and conditions attached to an IVA

  Your monthly repayments may leave you with a tight budget whilst your debts are repaid

 It will affect your credit score. IVAs remain on your credit file for 6 years from the day it starts, Some IVAs can last longer, therefore, this will show on your credit file for longer

 Not all debts can be included in an IVA, or example student loans, child support and maintenance, magistrate court fines and social fund loans are excluded from an IVA, but an allowance can be given to enable you to continue repaying these.

 If you fail to make the payments due under the terms of your IVA, then your arrangement could fail.

 Your IVA will be listed on the Individual Insolvency Service register

 If you fail to make the payments due under the terms of your IVA, then your arrangement could fail.

Will my house be protected in an IVA?

If you own your home, you will almost certainly be asked to get a valuation on your house in the last year of your IVA. If remortgaging the house would raise more than £5,000, you will be asked to remortgage it and any money raised will be put towards paying back your debts. You will not have to sell your home. If remortgaging would extend the mortgage beyond its existing term, or put you beyond the state retirement age when it ends, you will not be expected to remortgage the property.

If you can’t remortgage your house for any reason (refusal by the bank, or complications with a jointly owned property, for example), you will have to pay your usual monthly payments under the terms of the IVA for an additional year.

It is possible but unlikely that you will be able to keep your home out of the IVA and thus avoid remortgaging it. If your insolvency practitioner feels that you will be able to pay back enough of your debts without including your house in your IVA, they may propose that it be excluded from the IVA when negotiating with your creditors, but this rarely happens.

An IVA is a preferred option by many homeowners as your asset is protected whereas the alternative of bankruptcy you would in most cases be asked to sell you home.

If you rent your home, nothing will happen as long as you keep paying your rent but we would always advise for you to check your tenancy agreement before entering any agreement.

What if I miss an IVA payment?

Missing your IVA payment can be very risky, At all times you must keep your insolvency practitioner upto date with your current financial situation. Late payments may be acceptable if you have a good enough reason to why this has happened

Once you have missed 3 payments or equivalent then your practitioner will send you a ‘Notice of Breach’, Normally you will be allowed between one and three months to correct the problem explaining the missed payments and paying as soon as possible. Once you do this, no more action will be taken against you

Talk to your practitioner as the terms of your arrangement may be changeable but they can also terminate your IVA or apply to the court to make you bankrupt

You should always speak to your IVA provider as they will be able to help you in such a situation

What's the cost of an IVA?

An IVA (individual voluntary arrangement) is not free. Legally you cannot set up your own IVA. The insolvency practitioner who will set up your IVA will charge a fee.

This fee is normally taken as regular instalments from the payments you make towards your IVA (debts). The fee is to cover the cost of the advice offered by the insolvency practitioner, the time spent putting together the legal aspects of the IVA and negotiating with your creditors, also managing the IVA once it is set up.

What's the process of an IVA?

An IVA (Individual Voluntary Arrangement) was introduced as part of The Insolvency Act 1986 to help debtors come to an arrangement to pay debts over a set period of time as an alternative to bankruptcy.

An IVA is a legally binding agreement made between a debtor and his/her creditors, due to the legality and regulations imposed on Insolvency Practitioners there is a set process each IVA application must follow:

Complete A Review & Budget

Prepare Your Proposal

Meeting of Creditors (MOC)

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