Depending on your circumstances, an IVA can help you get back on track financially. Learn how to make your debt recovery experience a success story with our guide to IVA management
What is an IVA?
An IVA or Individual Voluntary Arrangement is a formal and legally binding debt management solution that is designed to help people get back on track financially.
If you’re in debt and keen to pursue an IVA, you’ll need to work with an Insolvency Practitioner (IP). They’ll help you determine a budget and suggest an affordable repayment plan to propose to your creditors. If this proposal is agreed at a meeting of creditors, you’ll be required to make fixed monthly payments to your creditors via the IP for several years.
IVAs typically last five or six years and your creditors won’t be allowed to contact you or pursue further action against you during this time. Once the IVA ends, any outstanding debt will be written off.
To qualify for an IVA, you’ll need to have:
- More than one unsecured debt
- Total debts of at least £5,000
- A regular income
Is it easy to get approved for an IVA?
If you think an IVA could be the right solution for you, your IP will work with you to put the best possible case forward to your creditors. An IVA can only go ahead if the creditors responsible for 75% of your total debt agree to the terms proposed.
A successful IVA proposal will be based on your monthly income and essential payments. It should show how much you can afford to put towards your debt without compromising living costs like your rent, energy bills, or food. A budget that isn’t based on accurate figures or allows for an unreasonable amount of non-essential spending may be at risk of being rejected.
Don’t panic; if your initial proposal is rejected, you can try again. Go back, revise your costs, and your IP can present a new version at another meeting of creditors.
How can an IVA help people get back on track financially?
While it might not be the right choice for everyone, a well-managed IVA can help people get back on track with their finances. Not only does it offer an affordable repayment plan designed to help you get out of debt, but there are several other reasons why IVAs can produce debt recovery success stories:
- Frozen interest
If you’re struggling to pay back your debt, mounting interest can make your situation even worse. The longer it takes for you to get back on track, the more you can end up paying. Once an IVA has been agreed, no further interest will be charged, meaning you can concentrate on paying down the debt you have without worrying about your bills escalating.
- No further debt recovery action
Once they’ve agreed to your IVA proposal, your creditors can’t pursue any debt recovery action against you. In fact, they shouldn’t contact you directly at all and should send all correspondence through your IP. You can then start paying back your debt without fear of being issued with a CCJ or having your assets removed by a bailiff.
- Living within a budget
Budgeting isn’t easy and it’s a habit that can take time to get right. Being in an IVA could help you learn this skill quickly as your budget will be set out by your IP and most of your disposable income will be committed to your monthly IVA payment. If you successfully manage your budget while in an IVA, it might be easier to stay on track in the future.
- Credit options limited
During an IVA your spending will be restricted, and you might be prevented from taking on any new types of finance. An IVA will also be marked on your credit report for up to six years, restricting your access to credit during that time. While it may not sound ideal, being prevented from taking out a new loan or credit card could help you pay down your existing debt without adding to it.
How can I make sure my IVA is successful?
Congratulations – your IVA has been approved and your agreement is now in place. But how can you ensure your IVA is a success story that helps you get back on track? Here are our top tips:
- Make payments on time
This might be the most important thing you can do during your IVA. Make sure that you make your agreed payment on time each month. There are steps you can take to make this easier such as setting up a direct debit that goes out the day after payday, so you’re not tempted to overspend or forget to make the payment.
- Stay in contact with your Insolvency Practitioner
You should have yearly check ins with your Insolvency Practitioner, but don’t be afraid to stay in more regular contact. This is especially pertinent if your circumstances change; don’t struggle in silence and risk falling behind with your payments. Be honest with your IP and they may be able to renegotiate your IVA to ensure it doesn’t fail.
- Manage your budget
Your IVA payment will be based on a strict budget that leaves you enough money to cover your essential costs. Straying outside of this budget and spending excessively on non-essentials could prevent you from making your payment on time and put your IVA at risk. Keeping a close eye on your budget can help ensure you always have the payment amount available and easily cover all your other bills.
- Explore all the debt relief options available
An IVA won’t be right for everyone. If you don’t have any disposable income, for example, you won’t be able to make the regular repayments that an IVA requires. Similarly, if your circumstances change frequently, your income is unreliable, or your debts are less than £5,000, an informal arrangement with your creditors might be a better solution for you. Take time to explore all your options with an expert debt professional before deciding to enter an IVA.
Why can an IVA be unsuccessful?
If you fail to keep up with the agreed monthly repayments, your IVA could be unsuccessful. In this case, your IVA could be terminated, and you’ll need to find an alternative debt management option. Your creditors will also be able to pursue you, take legal action against you, and add interest and fees to your debt again. It’s important to ensure that you only agree to enter an IVA if it’s the right option for you and your monthly repayment amount is affordable and appropriate to your circumstances. Don’t hesitate to contact your IP if something does change and you need the terms of the IVA to be amended.
Considering entering an IVA? Our team here at My Debt Plan to help you negotiate a repayment plan. Give us a call on 0161 8260 585 or send a message here