An individual voluntary arrangement, or IVA, is a form of insolvency, and it can be a good way of repaying your debts at a rate that you can afford.
An IVA shows your creditors you’re insolvent. In other words - you can’t repay your debts in a reasonable amount of time. But, there's no expectation that you’ll have to sell your home, and you might not have to sell any of your assets or items of value, such as a car if you have one.
To be eligible for an IVA you need to show that you don't have enough money to pay your normal monthly debt repayments, and that the amount of debt you have is more than any assets and equity you have in your home.
Instead, once you’re on an IVA you’ll make monthly payments for five or six years. There’s also something called a one-off lump sum IVA, where you make a one-off payment, and you can find out more about these on our website.
For an IVA to go ahead, 75% of your creditors need to agree to the proposal. This works on a value basis, so for example if you owe 50% of your debt to one creditor, their share of the vote is 50%.
IVAs are only available in England, Wales and Northern Ireland. If you live in Scotland, we’d suggest looking at some of the alternative options, including some solutions that are specific to people living in Scotland – again you can find out more about these on our website.
So let’s go through some of the benefits and risks of a standard IVA
When it’s approved, an IVA gives you protection from your creditors. They’ll stop contacting you and they won’t add any more interest or charges to any debts that are included in it.
And at the end of the IVA, any money left to pay off on the debts included in your IVA will be written off, as long as you’ve made all of the payments that you agreed.
So that hopefully sounds good. However, it’s important for you to understand the risks that you’ll need to consider before taking out an IVA.
IVAs are a form of insolvency, they’re legally binding, and they must be arranged through an Insolvency Practitioner.
The budget you agree with your Insolvency Practitioner should be affordable for the full term of the IVA, however if your financial circumstances change the IVA can be adapted.
If you go on an IVA, a reference to it will be added to your credit file. This’ll stay on your record for six years and will make it more difficult for you to get further credit during your IVA and once it’s finished.
You’ll also need permission to take out any credit over £500. This is really important to remember, as if you do this without getting permission, your IVA could be cancelled. This also applies to borrowing money from family and friends.
Additionally, your name will be added to an insolvency register. This can be read online if someone looks for it, but it’s unlikely someone would stumble across it, and it shouldn’t appear in online search results for your name.
If you’re a homeowner, you may also need to try to release equity through a re-mortgage. If you can do this, your IVA will probably last for a total of five years. If you’re unable to do this, it’s likely you’ll need to make another year’s payments instead.
There is also a risk that if your IVA fails for any reason, there is a risk of bankruptcy.
There are also fees involved with setting up an IVA, and these are included in the amount you pay. This does mean that there aren’t any upfront costs, and if your IVA isn’t approved then you won’t have any fees to pay at all.
And finally, it's very important to get expert debt advice to make sure that an IVA is suitable for you, and your individual circumstances.
We offer free debt advice both online, and over the phone. We'll help you put together a realistic budget and then recommend the most suitable debt solution for you.
If an IVA is a solution that’s appropriate for your situation, we'll help you set it up and be here to support you every step of the way.