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What do you need to know when you’re thinking of starting an Individual Voluntary Arrangement (IVA)?
It's easy to find the definition of an IVA online, but it can be hard to know what that means for you. In today’s post we’re running through some of the things you need to know if you’re considering an IVA.
What's the definition of an IVA?
An IVA is a formal, legally binding agreement between you and your creditors. (Creditors are the people to whom you owe money.) It involves making one regular affordable payment, usually monthly, usually over a fixed period - five years. This payment goes to a qualified Insolvency Practitioner, and they pay your creditors (after deducting their fees). At the end of an IVA, what remains of the debts included in the IVA are written off by the creditors included in it.
Once an IVA is agreed it is legally binding on you, but also on all the creditors included in it (whether or not they voted in favour of the IVA). This means that they are forbidden to chase you for payment, take legal action against you or add any more interest and charges to what you owe..
An IVA is a kind of insolvency solution. Bankruptcy and Debt Relief Orders are also insolvency solutions, but IVAs work differently. See our blog ‘Are IVAs and bankruptcy the same as insolvency?’ to find out more.
IVAs are available in England and Wales, and Northern Ireland. If you live in Scotland you won’t be able to start an IVA. The Trust Deed is a similar debt solution in Scotland.
Do I qualify for an IVA?
There are no set criteria for an IVA - except that you must be insolvent - which means not able to repay what you owe in a reasonable time. To establish what debt solution is right for you, it makes sense to speak to a regulated debt advisor or insolvency practitioner. If any IVA isn’t right for you, they will be able to recommend other debt solutions that might be more suitable, depending on your circumstances. Visit our debt solutions page to get a better idea of your options.
To start an IVA you’ll need to have at least two different creditors.
The kind of debts you have are important, too. Most of the debts you can include in an IVA are unsecured debts, like personal loans and credit cards. If you have both secured and unsecured debts and you’re wondering which debt solution might be suitable for you, get in touch for expert debt advice.
If you start an IVA and have other debts which aren’t included, you will have to continue paying these outside of your IVA.
Your income is also an important factor. On an IVA you’ll have to pay as much as you can afford every month, and the amount of your monthly payments will be set at the start of your IVA.
This means an IVA is only likely to be suitable if you have a reliable income that doesn’t fluctuate too much every month - although if you do have a lump sum available, you might qualify for a lump sum IVA, which is slightly different. An expert debt advisor will be able to help you find the right solution for you.
Who manages my IVA? Definition of an Insolvency Practitioner
Because an IVA is a legally binding solution, you’ll need a qualified Insolvency Practitioner (IP).
Insolvency is a regulated profession under the Insolvency Act 1986. So anyone who works as an IP has to pass a set of exams in order to be licensed to deal with formal insolvency procedures.
The IP will deal with your creditors throughout the IVA, so you don’t have to communicate with them yourself.
At the start of your IVA, you will discuss your financial circumstances with your IP. The IP will then work out what repayments you can afford (see ‘How much will I have to pay on an IVA?’, below) and how long your IVA will last. They will then put together an IVA proposal and submit it to your creditors.
What is the definition of 'IVA proposal'?
Check out our blog post, 'What is an IVA proposal?' to find out!
What happens when the IP contacts my creditors?
For your IVA to be approved, creditors to whom you owe at least 75% of the total debts included in the proposed IVA have to vote to approve it. If your IVA is approved, it will be legally binding on all of the creditors included in your IVA, whether they voted for it or not. This means they can’t pursue you, or take any further court action, as long as you keep to the terms of the agreement.
How much will I have to pay on an IVA?
Your payment is based on your disposable income - the money you have left over after paying your bills and other essential expenditure. This payment will include a fee to the IP involved with your IVA. The size of your fee depends on your circumstances, but is usually several thousand pounds. Your total regular payment will never be more than you can afford.
You will make your payments, usually monthly, directly to the insolvency practitioner, who will subtract their fee and then distribute the remaining money to your creditors.
What does an IVA mean for other areas of my life?
To find out more about what an IVA means for your credit rating, your job and so on, take a look at some of our other blog posts about IVAs:
Now that you understand the definition of an IVA and a little bit about how it works, do you think it might be the right solution for you? If you’d like more information, check out our debt solutions page and then get in touch for expert debt advice.
by Christine WalshBack to blog home