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Do I qualify for an IVA?

In order to enter into an IVA, you need to be sure that it’s right for your situation and that you qualify. To find out whether an IVA is right for you or not, you need to speak to a trained Insolvency Practitioner (IP). 

The first, and one of the most important factors, is where you live. IVAs are only available for people living in England, Wales and Northern Ireland. There will be different debt solutions available if you live in Scotland. 

If you live in England, Wales or Northern Ireland, your IP or their representatives will look at your financial situation and advise you on the best way forward, based on your individual circumstances. There’s quite a lot of flexibility with IVAs so no matter what your circumstances, give us a call to find out whether it could be right for you. However, in general, for an IVA to be the most suitable solution you should:

  • not have assets worth more than your unsecured debts (excluding your home if you own one)
  • have some money left over each month to pay towards your debts

If an IVA is the best way for you to resolve your problem debts, your IP can start to prepare your proposal. An IVA is not something you can enter into yourself. Unlike some other debt solutions, such as bankruptcy and debt management plans, which you can set up yourself, the paperwork needed for entering into an IVA must be done by an IP.

How long are you on an IVA?

With an IVA, you agree to pay as much as possible towards your unsecured debts. This can be as a one-off lump sum (which is known as a Lump Sum or Full and Final IVA), or more commonly in monthly payments for an agreed time. If you pay monthly, an IVA normally lasts for five to six years.

Very occasionally, an IVA may last longer, but this only happens in exceptional circumstances. The circumstances in which your IVA can be made longer would have to be discussed in detail with your IP.  

How much do you pay on an IVA?

The first thing to remember about payments into an IVA is that they will never be more than you can afford, so you don’t have to worry about being left with no food on the table. How much you pay is decided after you and your IP go through your household budget in detail. You’ll look at how much you have coming into your household and how much you have going out each month.

This process takes into account all your priority bills, like your rent or mortgage, council tax, utilities, food and transport and so on. What’s left over after they’ve all been paid is what’s called your disposable income or DI. You pay your DI into your IVA. Once your IP’s fee is paid, the funds are proportionally shared out between your creditors in terms of what you owe. So each creditor gets their fair share, depending on how much you owe each of them.

While the IVA is being set up, your creditors may still try to contact you, however, once it’s in place, you won’t have to contact or speak to your creditors again. The only exception are regular statements or notices they have to send you. If they do contact you for any other reason, you simply refer them to your IP.   

If your circumstances improve or you know they will improve (for example, if you get a pay rise), while you’re on an IVA, you should let your IP know immediately. An improvement in your circumstances may also mean an increase in the amount you are expected to pay towards your IVA each month. More on this later.  

individual voluntary arrangement
see if an iva could help-you

 

The approval process for an IVA

If you decide to go ahead with an IVA, your IP will draw up and present a proposal to your creditors and ask them to vote on it. Your proposal tells your creditors how much they can expect to be paid and sets out the terms that you and they will agree to be bound by if the IVA is accepted.

The number of creditors who need to agree to the proposal is not based on how many creditors you have, but on how much they are owed. You’d need creditors representing 75% of the total amount you owe to agree to your proposal for it to be accepted.

If your creditors agree to the IVA, it becomes approved and you are protected from any further action from them as long as you make your payments and stick to the terms agreed.

How long does an IVA take to set up?

An IVA will take between four and eight weeks to set up. The shorter timeframe of four weeks is possible if you have all the documentation that’s asked for readily available, such as proof of your income and outgoings. It also helps if you’re available to talk to your IP’s representative when they call. The sooner you talk any issues through, the quicker your IVA proposal can be finalised and sent to your creditors for approval.  

Annual review

Every year your IP will carry out a review of your IVA and your finances. This will help them determine whether you’re still able to cope with the payments you have to make towards the IVA, or, if your finances have improved in the previous year, if you need to increase your payments. The annual review is the same as the budget review that is carried out when you enter into an IVA. The IP will again look at what’s coming into and going out of your household each month, and determine your payments based on this. Your IP will also check whether you have completed any of the other agreements under the terms of your IVA. They will produce an annual progress report that they’ll send to your creditors.

If the annual review shows that an IVA is no longer the most suitable solution for you, your IP will help you understand what options are available for you when your IVA ends.

What happens after an IVA is finished?

You will be notified when your IVA ends and. Once you have successfully completed your payments, any outstanding balance on the unsecured debts included in your IVA will be written off. When you enter into an IVA, your creditors are already prepared for the fact that you’ll probably not pay back all that owe them.

Your name will also be taken off the Insolvency Register three months after the IVA has finished (there’s more about this in the rest of the guide). However, details of the IVA will be visible on your credit history for a minimum of six years from the date that it began and however long your IVA happened to last.