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Living on a debt solution

How do you manage my payments on an IVA?

Posted 29 March 2016

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If you’re in problem debt, it’s important to understand what life is like on a debt solution. Today, let’s look at how your payments would be managed on an IVA.

If you’re looking into an IVA (Individual Voluntary Arrangement) as a possible way of dealing with your problem debts, it’s important to familiarise yourself with the ins and outs of the solution. If you’re on an IVA, you’ll be expected to pay something towards your unsecured debts every month, so we thought it would be a good idea to have a look at how we would manage your payments, and exactly how your money is distributed out to your creditors, if you were to go ahead with an IVA with us.

What is an IVA?

IVAs are one of a number of debt solutions which can provide a route out of problem debt. IVAs are available throughout the UK, with the exception of Scotland. If you live in Scotland make sure you look into the Scottish debt solutions. IVAs allows you to reduce how much you pay towards your unsecured debts each month to an amount you can afford, allowing for your other essential expenses. You would normally stay on the plan for five-six years and, as long as you stick to the conditions of the IVA, the rest of your unsecured debts are written off at the end. 

 

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One of the main advantages of an IVA is that it is a legally binding agreement between you and your creditors and a formal way to deal with your problem debts. This means that if your IVA goes ahead, it would protect you from any legal action that your creditors may want to take against you to try and recover what you owe. If you’re at the stage where you are receiving letters about court action and bailiffs, then starting a solution like an IVA can provide a great deal of peace of mind. 

Whether or not you are able to start an IVA depends on the amount of debt you have and also how much you’re able to put towards those debts each month. When you speak to a debt advisor they will go through your income and expenditure in detail with you and work out how much disposable income you have – this is the money that you are able to put towards your debts, after you’ve covered your essential bills and living costs.

Your creditors also have to agree to the plan for it to go ahead. Your IVA provider puts together a proposal and your creditors may accept it, reject it, or ask for changes to be made to it. They tell us their decision at the creditors’ meeting, for more information on how this meeting works, have a look here

There are some disadvantages of starting an IVA, such as damage to your credit file because you’re not keeping up with the contractual payments and having to stick to a budget for the length of time that the IVA lasts. However, if an IVA is suitable for you, it can provide a welcome route out of debt. 

A brief look at how the costs work

There are fees associated with an IVA and it’s important you understand how these work, so you know what’s going to happen further down the line and how these are taken. Importantly, we won’t charge you anything if your IVA is not approved. So, you don’t run the risk of paying for a service just to have your creditors turn round and reject the proposal, if you take your advice from us. 

You won’t have to cover any of these costs all in one go, or as a separate amount – they are all taken from your affordable monthly payment. This will be calculated to make sure that you can afford it, as well as all of life’s other essentials. 

If your IVA is accepted, there are three different fees involved, including:

• the nominee’s fee – this covers professional costs like preparing your proposal and arranging the creditor’s meeting

• the supervisor’s fees – this covers the ongoing work involved in running the IVA

• costs/expenses – this covers things such as IT costs or insurance connected with running your IVA.

The fees are negotiable to a certain extent between your IVA provider and creditors. This means that your creditors have to be happy with them before the IVA can go ahead. For a more detailed look at how the fees are broken down, click on our guide

How we manage your payments

For the life of your IVA, all your contributions are collected in a non-interest bearing client account, and then sent from there to your creditors. The first payments that you make towards the IVA will go towards paying the Nominee’s fee. How much this is exactly depends on your creditors and whether they’re happy with the proposal that we first put together. Once the Nominees fee has been paid, we can then start distributing your payments to your creditors and the supervisor’s fee will also be taken bit-by-bit as you make these payments. 

The payments we make to your creditors are on a pro rata basis, which means that the creditor to whom you owe the most money will get most of the money, and so on and so forth. We want to make sure that we are managing your payments as well as we can – after all that is part of what you’re paying for. And that means that we need to remain in control of how and when your creditor receives the contributions towards what you owe. 

The creditors’ meeting is a chance for your creditors to check that they agree with the proposal and also to tell us how they would like to be paid if the IVA went ahead. Most creditors state that they would like to be paid monthly, while some say that they want to be paid quarterly as a minimum. A few creditors, like HMRC for example, only want to be paid twice a year. The creditors understand that they will start to receive your IVA contributions once the Nominees fee has been paid, and we will always make sure that we pay each one as they have asked us to. 

So that’s the long and short of how we manage you payments on an IVA. We want you to be aware of how things work so that you’re comfortable with everything. Having said that, while you’re on the IVA you won’t have to worry about how your payments are managed. No longer having to think about distributing the right amount to the right creditor at the right time is one of the main attractions of starting a debt solution like an IVA – we’ll completely take that worry off your hands and you just have to make a single payment each month towards your debts. 

For more details on how an IVA works, including a list of the pros and cons, have a look here. If you’d like to talk to one of our debt experts today about whether an IVA could be right for you, use one of the options to the left of the page.

 

by Christine Walsh

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.