Is an IVA right for me?

If you want to enter into an IVA, there are a number of things to ask yourself:

Do I want to cut my payments to an affordable level?

We're going to assume the answer to this question is ‘yes’. After all, it’s unlikely that you’d be thinking about any kind of debt solution, let alone a formal one like an IVA, if you could afford to pay back what you owe. One of the biggest benefits to entering into an IVA is the reduction of your monthly payments to a level you can afford and sustain. This should automatically lower your stress levels, as you know you’ll be paying off your debts.

Do I want someone else to deal with my creditors on my behalf?

One of the most common reasons we hear from people thinking of entering into a debt solution is that they really want someone else to deal with their creditors for them. Communicating with creditors can be stressful, so entering into an IVA will take the pressure off you because as soon as your IVA starts, your IP will take care of all contact with your creditors.

Will I be unable to pay off what I owe in a reasonable amount of time?

This will vary depending on how much you owe and how much you can afford to pay, so it’s best to speak to a trained debt advisor about what a ‘reasonable amount of time’ is. 

Do I have some spare cash each month?

You will have to make a payment each month. However, this amount will never be more than you can afford. Your IP will work with you to determine your disposable income, which is what’s left over after you’ve paid all your essential and priority bills. This amount will then be divided fairly between your creditors (after your IP’s fees are deducted). Alternatively, if you have a lump sum then you can offer this up as a single payment in what’s called a full and final IVA settlement. 

If you’re not able to make any payments because you have no disposable income, you’ll have to consider another debt solution. Your debt advisor will go through your options and advise you on the best way forward. If you can afford to make a payment, you need your income to be fairly regular. If you’re self-employed or on a zero-hour contract your income may fluctuate from month to month, which may make keeping up with your payments difficult. You could still be able to do an IVA, but you’d need to give careful consideration as to whether you’d be able to keep up with the repayments.

Do I have assets worth more than my debts?

If you have assets that are worth more than your debts (apart from in the case of a few limited exceptions) it is unlikely that an IVA is going to be suitable for you.  You’d probably be better advised to sell or release equity from your assets and pay off what you owe with the money you receive.  

When you enter into an IVA, the equity in your home is considered an asset rather than the property itself. So if you are a homeowner, six months before the end of the IVA you are required to try to release equity in your house and put that money towards the IVA. You would never be expected to borrow more than 85% of the value of your home. If you find that you cannot remortgage for any reason, your payments into the IVA would need to be extended for up to 12 months, to compensate for the fact you couldn’t release equity.

Do I have unsecured debts?

IVAs are designed to cover all the unsecured debts you have. Unsecured debts include your credit card, personal loans, overdrafts and store cards. The IVA will not cover your secured debts, which include your mortgage.

How much debt do I have?

There is no minimum amount of debt you need to be in to qualify for an IVA; however, if you have a relatively small amount of debt, another debt solution may be more suitable for you. The suitability of an IVA for your circumstances will be discussed in detail when you speak to a debt advisor or IP.

Do I think my circumstances will change in the near future?

We’re not expecting you to be a fortune-teller! What we’re referring to are situations such as, for example, if any of your children are going to turn 18 while you’re on the IVA. If they are, how will the reduction in child benefit change your budget? Will you still be able to afford your IVA payments without this extra income? Remember, any known changes coming your way can be factored into the proposal when it’s first put together.

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Will I lose my home if I enter into an IVA? 

No, you won’t be made to sell your home when you enter into an IVA. However, as we mentioned above, if you are a homeowner, depending on the amount of equity in your property, you will be expected to try to release at least some of this to pay into your IVA. This is typically done by attempting to remortgage your property. This process should take place six months before the end of your IVA term.

At that time, your IP will get a valuation of your property and will ask you for your latest mortgage statements to work out how much value, or equity, is in your home. You'll only be expected to remortgage if you have more than £5,000 in equity. Any loans secured against your property would be accounted for and, depending on the value of your share of your home (the value of the property minus the amount you still owe on your mortgage), your IP will tell you if you need to attempt to remortgage and, if so, how much you are expected to pay into your IVA. If you did have to remortgage, you would never be asked to borrow more than 85% of the value of your home.

Alternatively, you could ask a third party, such as your partner, to buy out your half of the property so you can put your share of the equity towards your IVA.  

If you cannot release the equity from your home, it’s likely you will need to continue to make your regular payments for up to an additional 12 months, or up the value of your equity.

Will my work be affected on an IVA?

An IVA will only affect your job if you work in certain areas - for example, if you are a solicitor, accountant, police officer, prison officer or have a job where you handle money or a credit check is required. Sometimes people in these professions may be prevented from practicing altogether if they have an IVA, although it’s important to say that we would never recommend an IVA if this was going to be the case.

If you work in one of these roles, or you intend to do so in the future, you should check your employment contract or the membership rules of any licensing body to see if you will be affected. Your debt advisor will be able to suggest an alternative debt solution for you if that is the case.

In some cases, an IVA may not legally restrict you from doing a certain job, but an employer can state in their employment contract that they wouldn’t want you to continue in the position if you became insolvent.

If you are in any way unsure whether your role would be affected, you should check your contract of employment or with your HR department. It should state clearly in your terms and conditions or in your role specification if your job is at risk if you become insolvent.

What happens to my bank account on an IVA?

When you start an IVA, your IP will not contact your bank unless you have an overdraft or other debt with them that you wish to include in your IVA.

As long as you don’t owe money to your bank you should be able to keep your account, although the terms and conditions might allow them to withdraw any overdraft attached to it if you enter into an IVA. If you have a current account that comes with an overdraft facility, it’s also worth remembering that when you’re on an IVA you’re not allowed to use any credit without the prior permission of your IP. Although this may seem like a disadvantage, it can actually be a big help as getting rid of the overdraft means that you won’t break this rule of your IVA.

An important point to be aware of is ‘offsetting’. This is a legal right banks have that lets them take money from one account and use it to pay off debts on another if both accounts belong to the same person. Many people have a number of products all with one bank – a current account, savings account, credit card and mortgage, for example. So, if you have missed your credit card payments, your bank could take funds from your savings account to clear the balance. And, although it may be hard to see it like this, they could actually be doing it to help you, as by paying off the debt the interest and charges won’t start to pile up. This is something you should be aware of if you have a number of accounts with one financial services provider.

If you are in debt with your bank but you wish to keep your account with them, you should check whether they could offset anything that came into your account against your debts with them. You can then decide whether it might be best to change your account provider.

You might be worried about whether you’ll be able to get another bank account, but there’s no need. Although falling behind with your debt repayments will have left you with a less-than-perfect credit score, there are banks that specialise in accounts for people in this situation. Those that offer basic bank accounts (most major high street banks) are now obligated to offer them free of charge. You won’t have all the functions you’d get with a normal bank account, like an overdraft, but most basic accounts come with a debit card, so you can withdraw cash from a cash machine and make payments online and in shops. You should also be able to set up Direct Debits from your basic account.

If you’re unsure whether you need to change your bank account, or you have any other questions about this process, speak to your IP.

How much of my debt will be written off?

When you enter into an IVA, your creditors are aware that it’s not likely you’ll be able to pay off the whole of your debt. When the IVA is completed, any debts that remain will be written off completely.

How much that will actually be can’t be represented in terms of an example amount or even a percentage, simply because it will be different for every IVA. For instance, your IVA might pay your creditors back 25% of what you owe, meaning they write off 75%. Or it could pay back 50% of what you owe, meaning that you’ve paid back half to your creditors.  Importantly, there is no minimum percentage that your IVA has to repay to your creditors - it’s more about whether or not the creditors can see that an IVA is the best solution, and that you’re making the best offer that your circumstances will allow.

So, how much of your debt is written off really depends on how much you can afford to pay each month and how much you owe in total.

Is an IVA confidential?

An IVA is private in the sense that you don’t have to tell anyone that you are entering into it, and anyone providing the IVA will be legally obliged to keep your details confidential.

Your IVA provider will tell your mortgage provider and all of your creditors, including any with which you have a joint account. Your provider wouldn’t tell anyone else about the IVA, but it’s possible that the creditors will tell the person with whom you share an account. Another possible exception is if you have any guarantor loans; if this is the case, your creditors may contact the guarantor for payment.

If you enter into an IVA, your name will appear on the Insolvency Register. The register holds the details of all the people in England, Wales and Northern Ireland who have entered into an IVA, have been declared bankrupt, and/or have decided a Debt Relief Order is the best way forward for them, and any member of the public can access it free of charge.

Your entry on the register will detail your name, address and date of birth. However, if you wish to enter into an IVA but you have a valid reason as to why this information cannot be made public, you can ask for your details not to appear on the register. You would, of course, need to provide strong evidence to support this claim.    

If you owe your friends or family money and you wanted to include the debt in your IVA, they would find out you were considering the debt solution as they would then be entitled to vote on the IVA proposal, along with all your other creditors. However, other than this and the examples listed above, the only way your friends and family would find out that you’re entering into an IVA would be if you chose to tell them.