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Want to know the truth about IVAs? Our myth busting guide is the place to start.
Individual voluntary arrangements, more commonly known as IVAs, are an alternative to bankruptcy for people who find themselves in financial difficulty. However, there are a number of rumours that, despite being incorrect, still persist. So to set the record straight, we’ve taken the questions we get asked the most and answered them below.
Myth 1 … Anyone can have an IVA, it’s just a way to write off debt, right?
This is one of the biggest myths about IVAs. They are not just an "easy" way to write off debt and they are certainly not suitable for everyone, as there are some criteria that you’d need to meet to be eligible. The main one is that you must not be able to pay back your unsecured debts within a reasonable amount of time. You would need to speak to a debt advisor to confirm if you would be eligible for an IVA and, if you are, you will need an Insolvency Practitioner to set one up for you. You also need to live in England, Wales or Northern Ireland to apply for and IVA. If you live in Scotland there are other provisions for those struggling with debt.
Myth 2 … but I’ve had a text saying that I can write off 70% of my debt.
With an IVA you pay back what you can afford, after essential living costs, for a set period of time … usually five years. Your lenders must vote to approve your IVA and they won’t approve it if they think you aren’t paying in a fair amount based on what you can afford. At the end of the IVA any remaining debt included in your IVA is written off by your lenders. Exactly how much this is (and it could be more than 70% or far less) will depend on your individual circumstances.
Myth 3 … I will lose my house.
This isn’t true, one of the good things about an IVA is that it can protect your property. The amount of equity in your home will determine whether an IVA is appropriate or not. If the equity is more than the total debt you owe, then depending on your circumstances it may mean an IVA is less likely to be the right option for you. It’s always best to seek professional advice to be sure.
Generally, during the 54th month of an IVA the creditors will require a valuation of your property in order to assess the level of equity in your property. If there’s equity remaining, you may be asked to try and remortgage your property to release the funds in order to pay back more towards your debt. If you are unable to do this, the term of your IVA may be extended, usually by a year, to make up the difference.
Myth 4 … I’ll have to move out of my rented flat.
There’s no reason why you should have to move out of your rented property, as there’s no obligation on you, or your IVA practitioner, to inform your landlord. And, as your rent will be classed as a priority bill, it’ll be one of the first things that gets paid.
Myth 5 … My employer will find out.
When you enter an IVA your details will be registered on the public insolvency register and anyone who wants search the register would be able to see them. But they would actually have to go searching for you, as it’s not something that someone could come across just by accident. Anyone who accesses your credit history will also see it, as IVAs are noted on there too. But, essentially, there’s no reason why your employers will find out, unless you tell them.
It is worth noting that there are some professions where there may be a clause in your employment contract about IVAs. The jobs we’re referring to are usually those in the finance and legal sectors. There are also some other jobs, such as the police force for example where an IVA might cause issues and you’d need to check your contract, or speak to your manager, to be sure of your position.
Myth 6 … I can’t have a bank account.
There’s no reason why you should be excluded from having a bank account. The only difference is, you cannot take any kind of credit facility … so that’s a no to credit cards and overdrafts. In order to get an account like this, you have to ask for a basic account. There’s no requirement for you to tell the bank that you are in an IVA, but, if they ask, you should be honest with them.
Myth 7 … I won’t have enough money to live on and I’m not allowed to save anything either.
These are two common misconceptions people have about IVAs. The first is totally wrong, the second, not so much! So, let’s look at the first part. As part of your IVA, you’ll do a thorough affordability assessment. This means that you’ll have to provide a detailed analysis of your income and expenditure, so that a truly accurate picture of your finances can be given to the creditors. In this assessment, you’ll have to declare everything you pay for. As long as you don’t leave anything essential out, you will be able to budget for it, providing it is within the allowed guidelines.
However, IVA practitioners know that sometimes bills pop up that were not budgeted for, such as a dental bill for example. So, when you are in an IVA you will be able to save a small amount of money each month to cover these kinds of expenses. You will not, however, be able to save larger amounts of money as your creditors will expect you to pay off what you owe them with any extra amounts you have left.
by Christine WalshBack to blog home