If you’re struggling to keep up with your debts but don’t want to fail to pay, an IVA could be the solution. Check out our guide to find out more about individual voluntary arrangements and how they work
Here at My Debt Plan, we know that circumstances can change. A sudden bill, an unexpected redundancy, or the rising cost of living can all make it tough to keep up with existing debt. If you’re finding it difficult to meet your creditors’ demands but can still afford to put some money towards your repayments, an IVA might be the right debt management solution for you.
What is an IVA?
IVA is short for Individual Voluntary Arrangement and is one way that you can manage a debt that you’re struggling to repay and avoid defaulting on your loans.
Available in England, Wales, and Northern Ireland, individual voluntary arrangements allow you to make regular payments to cover all or part of your debts. Typically, these are made monthly for between five and six years and are based on the amount you can reasonably afford to pay without wiping out all your disposable income.
Not only can an IVA help you manage your debt, but they can also offer more control than bankruptcy and allow you to continue running a business if you own one. And, once you’ve entered one, an IVA will legally protect you from being pursued by your creditors.
Am I eligible for an IVA?
Not everyone is eligible to enter an IVA. You’ll usually need to have at least three different creditors and a large amount of debt, but also show that you have a long-term source of income that allows you to pay something back each month.
Individual voluntary arrangements can only be used to help pay for certain types of debt. These include overdrafts, personal loans, Council Tax arrears, hire purchase agreements, credit and store cards, mortgage shortfalls, and any money owed to HMRC.
How does an IVA work?
If you’re looking for IVA advice or to set up an arrangement, you’ll first need to find an insolvency practitioner. These are qualified professionals – often lawyers or accountants – that act as a go-between for you and your creditors. It’s their job to work out exactly what you can afford to repay towards your debt and how long the IVA should last. That means that you’ll have to share details of your financial situation with them including your assets, income, and list of creditors, so it’s important that you find an insolvency practitioner you can trust. Some practitioners work independently while others provide IVA debt help through a debt management company.
Your insolvency practitioner will contact your creditors on your behalf. The creditors holding 75% of your total debt will have to agree to the IVA and, if they do, it will apply to everyone you owe.
Individual voluntary arrangements are formal, legally binding, and approved by the court. Once up and running, you’ll make each payment to your insolvency practitioner, and they’ll divide the money between your creditors.
How much does an IVA cost?
There are fees involved to get IVA debt help from an insolvency practitioner and it can be a more expensive solution than other debt management options. Expect to pay an initial set-up fee as well as handling fee each time you make a payment. These fees can be based on your total debt but it’s always worth getting costs upfront, so you won’t be blindsided later. Even so, the good news is that you probably won’t notice them once your IVA is up and running as they will be taken from your affordable monthly repayment.
What happens after an IVA ends?
Your IVA will be added to the Individual Insolvency Register but this will be removed three months after the agreement ends. Even so, it will remain on your credit report for six years and may impact your chances of securing future loans.
If you reach the end of the individual voluntary arrangement and have kept up with your repayments throughout then, even if you haven’t covered the original debt in full, you won’t have to pay any more unless you get a windfall. In that case, this additional money can be taken to pay your creditors, even if the IVA is over.
It’s also worth bearing in mind that the IVA can be cancelled by your insolvency practitioner if you don’t make all the payments, and this can lead to bankruptcy.
Could an IVA be the best choice for you? Our friendly debt advisors are here to help you compare the debt management options available and make an informed choice. Find out more by calling 0161 8260 585 or send us an email here.