The IVA (Individual Voluntary Arrangement) is a popular debt solution, suitable to people with debt over £12,000. It’s important to be given accurate advice on an IVA because it can impact on equity within assets, such as a house. It’s also a long term debt solution (usually at least 5 years), so it’s essential to seek advice before entering the solution.
What Is An IVA?
An IVA is a formal debt solution where a person makes one monthly affordable payment toward their debt. The IVA solution usually lasts for five year. Near the end of the solution, if there are any assets, like a house or car, these will be assessed to determine if there is any realisable equity. At the end of the solution any remaining debt is written off.
An IVA guarantees to freeze interest and charges and is cleared at the end of the solution. For many people, the IVA is an ideal solution to become debt free. There is no more trying to remember what creditor you still have to pay each month as you will make one monthly payment and this will cover all your debt.
If you own a property you will never be asked you to sell it, however four and a half years into the IVA they will look at any equity you may have, if there is realisable equity they will ask you to remortgage, or ask for a third party buy out, if this is not possible then they will extend your IVA from a five year solution to a six year solution.
If you currently owe money to the bank in which you bank with then you will be advised to change bank account.
If you decide that the Individual Voluntary Arrangement is the correct solution for you, it can take a few weeks for the debt solution to be organised. A meeting of creditors will determine whether your IVA is accepted, rejected or modified. (You are not required to attend, as your IVA company will represent you).
For many people an IVA is the best way to become debt free, though you must make sure you are well aware of all the pros and cons before you enter any solution.
Who Can Arrange a Free IVA?
There is no solution where a free IVA can be proposed on your behalf. Every IVA requires a licensed Insolvency Practitioner where fees must be charged to provide the service. The fees for each company vary but are agreed in advance of your IVA being accepted. The fees for an IVA come from your monthly payments, which means a percentage of your monthly repayments will go towards the IVA practitioner. Your creditors will receive the remaining funds.
Many people advise they provide free IVAs because you don’t have to pay any money upfront and that your monthly payments cover their fees. Strictly, you’re paying for the IVA service from your monthly contributions, so it’s not technically a free service.
Every IVA service should tell you in advance exactly what their fees will be.
Quick Guide: An IVA
What’s the solution: An Individual Voluntary Arrangement (IVA) is typically a 5 year solution where you propose to make one affordable monthly payment towards your debt. You agree to include any realisable assets (such as equity from a house or car, stocks, shares, bonds etc) too. At the end of the solution all remaining debt and any interest or charges are cleared.
What are the benefits:
- You gain the protection from your creditors.
- When you complete the solution any remaining debt is written off.
- Interest and charges are cleared at the end of the solution.
What are the negatives:
- Your credit file will be impaired for 6 years. This means obtaining finance will become more complicated.
- You can’t borrow money whilst in the IVA without the permission of your IVA practitioner.
- An IVA is only suitable for a small percentage of people, so make sure you get independent advice before entering any solution.
Top IVA Tips
1. The IVA is a formal debt solution and you can’t move from one company to another, so make sure you’re happy before you sign.
2. If you have a property and there is equity then the next question is whether you can release this money, usually via a remortgage. If you can’t then the IVA may last for 6 years. The last year would become the equity year. You would retain your property and be debt free in 6 years, instead of 5.
3. If you inherited money or won the lottery this would need to go to pay off your solution.
4. Your payments will vary throughout the terms of your IVA. What may be affordable at the start may not necessarily be affordable in a couple of years. Each year your Insolvency practitioner should look at your affordability and if necessary your payments can go up or down accordingly.
5. If you have a partner and you’re both in debt, you can enter a joint IVA.
Anyone considering entering an IVA should get free and reputable IVA advice before they start the process.