IVA advice - what is an IVA and can it help you out of debt?

What is an IVA?

An IVA or Individual Voluntary Arrangement is a legally binding contract between you and your creditors to pay off as much of your debts as you can afford over what is usually a 5 year period.They were first introduced by the Government in 1986 as a way of helping creditors (the people you owe money) recover more money than they would have received in Bankruptcy and debtors avoid some of the main drawbacks of bankruptcy.

Assuming your creditors agree to your proposal (75% by value of debt must vote in favour of it), interest and charges will be frozen and you and your home will be legally protected from any further enforcement action by your creditors.

How much debt is written off? 

The principle behind an IVA is that the debtor (who owes the money) repays what they can realistically afford each month over a five year period.  How much debt is written off depends on how much was owed originally and how much the debtor is able to repay over the five years. You can have up to 70% of your debts written off

Is there a catch?

Surprisingly, a lot of people don't opt for an IVA because they think it sounds too good to be true. To set the record straight, an IVA is in fact a very real debt solution that is written off into statute (UK Government Insolvency Act 1986).  An IVA is started in the UK about every 13 minutes. See also IVA Gov.

Where can you get an IVA?

Only an insolvency practitioner can propose and manage your IVA. We work with a number of experienced Insolvency Practitioners to help secure an IVA that works best for you. If you are considering an IVA, there are important factors to consider when looking for an IVA company.

How much does an IVA cost?

The cost of an IVA depends on how much you can afford to pay your creditors each month and whether any assets that you own have any equity in them that can be released. Your monthly payment is based on how much you have left over after your essential living costs and priority debt re-payments have been accounted for. 

It doesn’t matter how much your current monthly creditor payments are, you will only be expected to pay what you can afford. The licensed professional that administers the IVA, known as an Insolvency Practitioner, does receive a fee for setting up and managing the arrangement. But, IVAs are often described as ‘free IVAs’ because the fee is actually part of your monthly payment you make to your creditors, so it is paid to the Insolvency Practitioner at no extra cost to you.

However, it’s still important that you are aware that fees are involved as there are rare circumstances which may result in you being liable for an amount equivalent to the fees in addition to the debt - for example, if you received a windfall such as winning the lottery, which meant you were able to pay back all of your debts or if your IVA fails, which means you’ll have paid an amount in irrecoverable fees up to that point.

IVA pros and cons

The advantages of an IVA are:

  • You can maintain monthly payments at an affordable level
  • You keep your house - although you may need to release some of the equity that is available
  • Any unaffordable debt will be written off - on average this is 50% to 60% of the original debt
  • Interest and charges are frozen
  • Your creditors are legally prevented from taking enforcement action against you such as petitioning for your bankruptcy
  • You're facing up to your debts and repaying as much of the borrowed money as you can afford
  • You’re hopefully on the road to financial recovery

The disadvantages of an IVA are:

  • You’ll need to be disciplined with your spending and stick to a budget for 5 years
  • If you own a house with equity, you may be asked to release some of it
  • A record of your IVA will be held on the Insolvency Register as well as on your credit file for 6 years. This means your credit rating will be affected during that time, making borrowing money more difficult and more expensive
  • If your IVA does fail for whatever reason, any fees you have paid up to that point won’t be recoverable

Would you qualify for an IVA?

You've had the IVA explained, and now you want to find out if you want qualify. To be eligible for an IVA, you need to: have at least £6,000 or more of unsecured debt, have two or more creditors, be resident in England or Wales, and have a steady income.

IVA Application

The process involved in setting up an IVA is as follows:

1. Contact us to discuss your options

2. An IVA proposal pack will be sent to you for you to review, sign and send back to your Insolvency Practitioner

3. A date for a Meeting of Creditors is set and as long as creditors representing 75% of the value of your debt agree, the IVA will be passed

IVA Questions

If you have any specific question on IVAs you may find the answers in our IVA questions section. Don't forget, if you don't find the answer you're looking for, you can ask an IVA question yourself.

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