All you need to know . . .
What is an IVA?
If you’re struggling to repay your debts in England, Wales or Northern Ireland, an Individual Voluntary Arrangement (IVA) is one of the many possible solutions available to you. Scottish residents have access to a similar option available to them, known as a Scottish Trust Deed. While there are similarities between the two, an IVA and a Scottish Trust Deed are not 100% alike.
A legally binding solution to managing your money and paying off multiple debts. It is an formal repayment arrangement between you and your creditors.
An IVA is a legally binding arrangement between you (the debtor), and the people you owe money to (debt holders or creditors). IVAs are designed with the sole purpose of allowing you to make affordable and reasonable repayments to all of your creditors at once. This allows you to pay all of your creditors over a set period of time. After making your fixed monthly payments for the agreed period (usually a period of five years), your remaining debt is legally written off and you walk away debt free.
The promise of writing off your debt may make you want to dive straight into an IVA, there are a number of factors to take into consideration. If you fail to meet the conditions of your IVA, the agreement can be terminated. Your debt will remain, and there will be a note on your credit file stating that you’ve used an IVA. This can remain on your file and affect your credit rating for up to six years prior to the agreement date, there are repercussions if you do not fulfil your part of the IVA agreement. Applying for an IVA can be a straightforward process with the right expert help and guidance. Depending on the current circumstances, for many people, it’s the most suitable option to becoming debt free. There is a technical legal process that takes place for the arrangement to be implemented.
If you’re wondering if an IVA is the right solution for you, speak to a debt management specialist at Refresh Debt Services for FREE advice on 0800 121 48 63 or complete the online form on this page.
What are the benefits of an IVA?
There are many benefits when setting up an IVA. One of the main advantages, is that once the IVA has been finalised, you know that you will be debt free in approximately five years (subject to the terms of the agreement). In the interim while you’re making your payments, you’ll be safe with the knowledge that debt collection agencies will legally no longer be able to contact you or take any legal action. Another benefit an IVA provides is increased flexibility over your repayments. When you set up your IVA, you’ll agree to a monthly amount that you can afford to repay, while still being able to manage basic living costs and maintain a reasonable living standard.
As part of the set-up process, you will discuss your proposed budget with an insolvency practitioner for your repayments. By doing so, you gain increased control over your assets and property, maintaining a ‘say’ in how they are treated with regards to your debts. Depending on the terms of the agreement, you may be able to exclude certain assets from the IVA such as your home or car.
While your debts are being safely and correctly managed by a professional insolvency practitioner, you are technically under a form of insolvency; some people mistakenly use this term interchangeably with bankruptcy. However, the two are not the same. Insolvency through an IVA can be a lot better than filing for bankruptcy, this will depend on your individual financial situation. If you need advice on insolvency, call Refresh Debt Services today, and a professional debt advisor from our team will be able to discuss both the advantages and disadvantages, giving you the right advice to help you make an informed decision on how to proceed moving forwards.
What are the drawbacks of an IVA?
Generally, IVA arrangements will last for 5 years. Your credit file will also be affected as you will be declared insolvent through the insolvency register. This can affect your credit rating for 6 years from the time your IVA starts, therefore, reducing your chances of being granted credit during this time period.
An IVA is a formal agreement and legally binding with your creditors. Not all creditors will agree, and some may have additional terms. If your monthly income increases or you trigger the ‘windfall clause’, you may have to pay a higher monthly amount into the IVA.
If you would like to discuss the advantages and disadvantages of an IVA with a Refresh debt advisor, call 0800 121 48 63 or use the online contact form on this page.
How to apply for an IVA
If you have decided that an IVA is the right option for you, we will put you in contact with a professional insolvency practitioner, should you need further help or advice with the mediation process, we’ll be right here to help.
Your insolvency practitioner has 3 roles to help you get set up and complete your IVA. The first role is as an Advisor, confirming that you understand and are happy with how your IVA will work. At this point you will have to provide your insolvency practitioner information about your assets, debts, income and creditors in order to calculate an affordable sum which you can repay each month. The proposed and agreed budget will ensure that your repayment plans are realistic, and that all of your eligible debts are covered by your IVA.
The second role your insolvency practitioner carries out is as your Nominee; once your proposed budget is approved, your insolvency practitioner will pass the terms of your IVA onto your debt holders. If 75% of your creditors and debt holders agree to the terms of your IVA, all of them are accepted into the agreement whether they agree or not. Your insolvency practitioner will inform the courts that your IVA has been approved, and file all the necessary paperwork so you can start making your repayments.
The final role your insolvency practitioner carries out is as a Supervisor; watching over your finances and repayments for the entire duration of the IVA. If you miss any payments, your insolvency practitioner will be there to chase you up and follow up on your financial position. Likewise, if you come into a windfall or a pay increase, your insolvency practitioner needs to be notified in order to properly oversee your IVA.
Apply now by calling 0800 121 48 63 or use the online contact form on the right.
How much will I have to pay for an IVA?
While there are certainly a lot of benefits an IVA can provide you, An IVA isn’t free; you will need the help of a professional insolvency practitioner. An insolvency practitioner is effectively your accountant while your IVA is in effect. There are no legal guidelines as to how much an insolvency practitioner should charge for their services, they generally charge around £5,000 on average. These fees are normally included as part of the IVA as one of your non-priority debts. The Insolvency Practitioner manages the whole process by submitting the required legal paperwork and application to the court.
In terms of your monthly repayments, you will pay back as much as you can reasonably afford within the agreed terms. In order to make regular payments, you will have to follow a budget agreed with your insolvency practitioner. Depending on your lifestyle, you may find yourself cutting back on some of your living expenses. This agreement is legally binding, including the set monthly repayment amount. This figure won’t change as long as your financial position remains constant.
Most IVAs come with a ‘windfall clause’, which means that if you come into any money during the course of your IVA, you have to declare it to your insolvency practitioner as a source of income. These windfalls can include things like a pay increase at work or any profits made when selling and moving home. Likewise, if you’re lucky enough to win the lottery or unfortunate enough to lose a family member, any winnings or inheritance could be given to your debt holders as part of this windfall clause.
Who is eligible for an IVA?
If you want to apply for an IVA, there are certain conditions which must be met in order to be considered eligible. Since an IVA is a legally binding agreement between several people, all of these conditions need to be met, or your application will be rejected.
In order to qualify for an IVA, the sum of your debts must be greater than the total value of your assets, including your house and any other assets. You also need to be able to make regular monthly payments at a reasonable amount; if you’re currently out of work, or can only offer less than £100 per month in repayments, it’s unlikely that your IVA will be accepted.
If you fall into these categories, an IVA may be the right debt repayment solution for you. To find out more about setting up an IVA, call us on 0800 121 48 63 or fill in the online form on this page.
What type of debt can be covered by an IVA?
Since IVAs are designed to tackle multiple debts at once, there is a list of debts which you can place under one agreement. If you’re struggling with two or more of the following ‘non-priority debts’ listed below, an IVA could make repaying all of your debts more affordable.
• Personal loans
• Pay day loans
• Credit cards
• Store cards
• Overdraft, including fees and charges
There are also ‘priority debts’ which can be placed within an IVA, these priority debts include any council tax arrears you owe, repossessed asset debts and utility debts such as gas, electricity and water.
There are debts which can’t be included in an IVA, such as court orders permitting to child support, child maintenance, court fines or student loans. If you are having trouble making payments to any of these, they must be dealt with separately.
Is my home at risk if I take out an IVA?
This will depend on a number of different factors, including the value of the property, who owns the property, and how much is owed on the property. If you’re a home owner, we recommend speaking to one of our advisors to see how this may affect the terms and conditions of any agreement.
Need more advice?
If after reading this, you think that an IVA would be the right solution for you, contact our expert debt advisors to discuss the pros and cons of using an individual voluntary arrangement (IVA) to get out of debt.
Call now on 0800 121 48 63 or use the contact form on this page.