IVA to The Rescue – Individual Voluntary Arrangement

The world we live in today is a far cry compared to what it used to be not too long ago. The times are challenging and so is the economy. If you have reached a tipping point in your relationship with the creditors, maybe is time to consider an IVA Loan as a debt solution. At Center 4 Debt Management we like to think about it as a “bridge” over time, to a more prosperous and debt-free economic period. It might be your best choice, instead of capitulating to bankruptcy or fighting an uphill battle to make payments that are not affordable at this time. Applying for an IVA (Individual Voluntary Arrangement) can help you write off as much as 80% of your debt while making an affordable monthly payment plan for a set period of time. Also, any unsecured debts will be written off at the end of the IVA. Feeling impressed?

Now, that I got your attention, let’s explore a bit more what exactly IVA debt help is, and how applying for an IVA loan really works. We will then explore the pros and cons, and in the final part, everything you need to know will be summarized in the FAQ section.

What Is An Individual Voluntary Arrangement (IVA)?

In the UK, the IVA’s or Individual Voluntary Agreements are legal debt management agreements between you and the creditors. Once negotiated and agreed upon by you and the creditors, you will make a monthly payment towards your debt over a 5 years period of time usually. The monthly payment will be shared among the creditors, based on a percentage stipulated in the agreement. IVA’s are also known as debt management plan or debt consolidation tools.

How Does An IVA Work? – Individual Voluntary Arrangement

The IVA agreement is negotiated on your behalf by an insolvency practitioner or agency, and all the fees related to this service are included in the monthly payment. Depending on your situation, your assets might be held in trust or controlled by the beneficiaries during the term of the IVA. Although not new in the debt consolidation land, an IVA (Individual Voluntary Agreement) can rebalance your finances in the short to medium term, and put you back in the driver seat, and bring your peace of mind. Why? Because at the end of the IVA term, you will simply be debt-free, and that’s a (debt) relief, no pun intended.

Is An IVA Right For You?

That is a very good question, and the first step towards making this decision is to map out your budget. Analyze how much income you have and what are your monthly expenses. This simple calculation will allow you to approximate how much you can pay every month towards your debt. Do not worry if you are not really sure about it, there is plenty of advice on IVA out there. Typically, after you contact an IVA debt management agency, the insolvency practitioner will review your income and expenses again and calculate the most affordable monthly payment for you.

IVA Debt Solution Example:

The table below illustrates the difference between the total contractual repayments before and after an IVA. Please note that this is just an example, and the monthly payments are based on individual circumstances.

Total Debt £20000With IVA agreementDifference in payment
Was paying £520/monthThe monthly payment is £150£370 monthly reduction
      To 3 CreditorsDebt is written off £11000Big savings

What Is It Covered With An IVA – Individual Voluntary Arrangement?

Common types of debts such as personal loans, payday loans, credit cards, store cards, bank overdrafts, utility arrears (gas water, and electricity), Council Tax arrears, Income Tax arrears, hire purchase debts, benefit overpayments, and informal debts to your friends and family are covered by the IVA. However, when it comes to secured debts like mortgages and loans against the property, as well as few other types of debts, such as student loans, social funds loans, tv license arrears, child support dues, certain forms of car financing, and court fines will have to be paid separately of the IVA.

A special mention must be made about joint debts. Although joint debts are covered by an IVA, the other person must also make payments. If this is your case, the insolvency practitioner will explain to you how it may affect the other party, and work out a solution as part of the IVA. As a rule, the other party is fully liable for the whole joint debt. If the other party is not entering the IVA, an allowance will be made for them to repay the debt in the Income and Expenditure calculations.

Cost Of An Individual Voluntary Arrangement – IVA

Each IVA generally consists of 3 main costs:

  • Nominee fee – cost of the proposal – must be approved by creditors
  • Supervisor fee – 15% of future realisations to cover ongoing costs
  • Disbursements – registration fee, legal, maintenance, and insurance fees        

Note on the nominee fee:

  • The Nominee fee can be incorporated in the first 5 payments of the IVA and it can be as much as £2,000.00.                                                                               

As mentioned before, all the costs are included in the monthly payment towards the IVA agreement that the insolvency practitioner has negotiated on your behalf.

IVA Pros And Cons

PROSCONS
You will be free of debtYou will live on a tight budget
Pay a monthly affordable paymentIVA will affect your credit score 6 years
You won’t have to sell or give up ownership of your home Your insolvency will be recorded in the    IVA register
Creditors will stop callingPay a fee ( included in the payment)
Current penalties and late payment charges are waivedYou will not be able to borrow more than £500
No upfront fees 
No hidden costs at the end 

Do You Qualify For An IVA – Individual Voluntary Arrangement?

Certain criteria need to be met before entering into an IVA agreement. We will list below the most common ones:

  • To qualify for an IVA, there must be at least two creditors that you are indebted to.
  • Currently, the IVA debt help is available only in England, Wales or Northern Ireland. If you live in Scotland, a Trust Deed is available as an option.
  • The approval process requires that the creditors representing a minimum of 75% of the value of your debt must agree on the terms of the agreement.
  • As mentioned before the IVA’s Term is usually 5 years. If you are a homeowner, you will be probably asked to release some of the equity and pay it towards the IVA. If you’re unable to get equity out of the value of your home, you’ll need to make a further 12 months’ worth of payments into your IVA; therefore the term will be 6 years.
  • Owe at least £7,000.00.
  • You must have a stable source of income. Regular employment, pension or benefits are qualified sources of income.
  • The threshold for the minimum affordable monthly payment is £50.00.  

FAQ‘s

We have answered some of the most common in the article. However, we believe is very useful to provide more answers to different scenarios questions related to IVA’s.

What happens if I can not make the monthly payments?

As soon as you encounter difficulty in making monthly payments, it is very important that you contact the insolvency practitioner in charge of your file, also known as the administrator, and discuss possible options and remedies. There are many circumstances that can affect your ability to make the monthly payments, such as a reduction in income or illness. The administrator has the option to impose a payment break or renegotiate lower monthly payments. Failure to contact the administrator and make the payments can lead to bankruptcy.

Is my IVA public?

IVAs are not published in any newspaper (unlike bankruptcies), but it will be registered on the Insolvency Register, which is accessible via the internet by anyone. For this reason, a lot of people are choosing the IVA option versus bankruptcy. The IVA will be removed from the registry after completion. The procedure takes about 3 months.

How an IVA will affect my credit rating?

The first thing to consider is that your credit was already impacted if you have defaulted on credit payments or loans. Registering for an IVA will not improve your credit rating. An IVA will remain on your file and show on your credit report for 6 years or until the completion of the IVA. During this time you will possibly be denied any credit. However, credits under £500 are still possible to be obtained. Any credit over £500 should be applied with the prior permission of your IVA supervisor.

How my partner be affected by my IVA?

Unless there is common debt, your partner will not be affected by the IVA. This matter should be discussed with the insolvency practitioner prior to entering the IVA if you are jointly liable for any debt. Please keep in mind that your partner is fully liable for any joint debt. The creditors can pursue your partner for the outstanding amount as well.

How will the IVA affect my pension?

An IVA will not affect your state pension, however, your personal pension payments may be. During the IVA duration, you may only be allowed to make minimum payments to a pension. If for some reason, you are not able to comply with making only minimum payments towards the pension, the Supervisor may be able to negotiate with the creditors on your behalf to find a compromise.

Can the creditors continue to contact me?

Your creditors cannot contact you after the IVA was signed. The creditors will be informed of the IVA and they should stop chasing you for payments. That being said, they can still send you automated annual statements or default notices, but you can disregard those. If any of the creditors listed in the IVA, continues to chase you, after the IVA was signed, you should inform your IVA administrator and forward to them their details. Generally, if you are making the payments on time, every month, the creditors will stop contacting you.

What is an Interim Order?

Your IVA administrator may apply for an Interim Order to stop any legal court action related to your unsecured debts. Interim orders are issued when the creditors are trying to continue or take legal action against you.

What is an Annual Review?

The annual review takes into consideration your income status. At this time, the overall performance of the IVA will be discussed as well. Based on the proof of income you are presenting to the administrator, an IVA analysis will be conducted. The results will determine if you can keep paying the same amount or if your monthly payments can be increased. In case of an income increase, you might be asked to supplement the monthly IVA payment with 50% of the monthly surplus.

Note – If you have a Full and Final IVA, the annual review will not be conducted.

What happens if my IVA fails?

If you have breached the terms of your IVA is likely that the creditors will start applying interests on the amount owed and possibly proceed with legal action against you and your assets.

The main reasons for an IVA to fail are related to taking out credit without your supervisor’s permission, not disclosing all your assets in the original proposal or failing to remedy a previous breach as agreed.

If you still wish to continue your IVA, you should contact your IVA administrator immediately and inform him of your intent. 

The administrator can work with you to remedy any breach and bring your IVA to a successful conclusion.

What happens once I’ve completed my IVA?

After the final checks, the completion process will begin. First, you will receive a Completion Notice. After the creditors receive the notice, they will update the records on your credit file accordingly.

The Insolvency Service will be also notified of the status of the IVA and they will update their records as well.

The whole process could take up to 3 months.