An individual voluntary arrangement (IVA) is a legal procedure for people in financial difficulties with unsecured debts. It is a legal agreement between you and your creditors to only pay what you can actually afford to pay off your debts.
The arrangement will stop any further interest and charges being added to your debts, and normally lasts 60 months (although occasionally 72). You will be legally required to pay the agreed monthly payment, and at the end of five years anything remaining (up to 80%!) will be legally written off.
Pros of an IVA
- You can write off up to 80% of your debt.
- It is legally binding.
- It has a strict time frame of five (or six) years.
- You can keep your assets.
- Protect your home.
- One affordable, monthly payment.
- Stops creditors chasing payment.
Cons of an IVA
- Will affect your credit rating for six years.
- It could affect your job.
- You may need to release equity in your home.
- Your name will appear on the public Insolvency Service website.
- It may lead to bankruptcy if you break the terms of the IVA.
Some error has occured.
Individual Voluntary Arrangement FAQs
- Do creditors have to agree to my IVA?
- What debts can be included in an IVA?
- Which debts cannot be included on an IVA?
- What can happen to my home in an IVA?
- What can happen to my car in an IVA?
In order for your IVA to go ahead there will be a ‘meeting of creditors‘ where your creditors will decide whether or not to accept your IVA. Creditors covering at least 75% of your debt that take part in the vote, must agree for your IVA to go ahead. As long as you get this 75%, the other must go along with it.
The majority of people’s troublesome debts are unsecured debts, and these are what can be included on an IVA. These include;
- Personal loans
- Payday loans
- Store cards
- Income tax and arrears
- Water arrears
Secured debts, and a few other specific cases, cannot be included in an IVA, and must be paid as agreed. These include;
- HP agreements
- Court fines
- TV licence arrears
- Student loans
- Child support arrears
This depends on whether you own or rent your home.
If you rent, this should be the end of it. The IVA should no effect on your home, and it’s is extremely unlikely that you will be asked to move.
If you own your home, you may be asked to remortgage it in the final six months of an IVA in order to repay more of your debts. If you are unable to do this, a further 12 months could be added to your IVA.
As long as you own a ‘moderately priced’ car (or motorbike), you will usually be able to keep the car. However, if there is a lot of value in the vehicle, you may be asked to sell it.
Example of an IVA
Mrs. A. contacted us with debts totalling £24,000:
- £4,000 line of credit
- £8,000 personal loan
- £12,000 credit card
She was paying £600 every month and struggling to make ends meet. The people she was paying were sending her letters every month, and she was afraid to answer the phone to anyone in case it was her creditors asking for more money. And to top it all, due to interest rates and charges, she had very little chance of ever paying it all back.
Mrs. A. finally had enough when she realised that her outgoings were greater than her incomings and she simply couldn’t cope. She talked to an advisor at Debt Assist UK who looked into her financial situation and suggested that an individual voluntary arrangement (IVA) would help her situation.
Just a short time later the letters and calls had stopped, and she could stop worrying every time the phone rang. Rather than endless paying off £600 per month, she was now paying £120, she could once again afford to live and there was now a clear deadline; in just five years she would be free of these debts!
Alternatives to an IVA
Debt Management Plan (DMP)
Usually suitable for people with unsecured debts totalling under £15,000, a debt management plan (DMP) is an informal way to repay your creditors by making a single, affordable payment every month. As DMPs are flexible, the amount you pay can change depending on your financial circumstances.
Free Debt Help
The Money Advice Service is an impartial service set up by the government to help people manage their money. To find out more about free debt advice, debt counselling, debt adjustment and credit information services, visit www.moneyadviceservice.org.uk