Individual Voluntary Arrangement (IVAs): What are they and how do they work?
An IVA, or Individual Voluntary Arrangement, is a popular debt solution available in the UK. It can be an extremely useful way for people with high debt levels to legally deal with debts they can’t afford to repay.
In this guide, we’ll explore IVAs in more detail, including how they work, who is eligible for an IVA, and the main advantages and disadvantages.
What is an IVA?
IVAs are formal agreements between you and your creditors to repay your debts over a fixed period of time – usually 5 years. During this time, you make regular monthly payments towards your debt, and your creditors agree not to take any further action against you.
How does an IVA work?
If you’re struggling to repay your debts and you think an IVA might be the right solution for you, the first step is to get in touch with a licensed insolvency practitioner (IP). They’ll assess your financial situation and advise you on whether an IVA is the best option for you.
If you decide to go ahead with an IVA, the IP will work with you to draw up a repayment plan. This will detail how much you’ll need to pay back each month, as well as how much of your debt will be written off at the end of the IVA.
Your creditors will then vote on whether to accept or reject the IVA proposal. If it’s accepted, you’ll be legally bound by the terms of the IVA and you’ll make your monthly repayments to the IP.
Who is eligible for an IVA?
To be eligible for an IVA, you must owe at least £5,000 to more than one creditor. You also must be unable to repay your debts in a reasonable amount of time and be a resident of England, Wales or Northern Ireland.
What are the advantages of an IVA?
There are several advantages to taking out an IVA, including:
Your creditors are legally bound by the terms of the IVA and can’t take any further action against you. This means you can focus on repaying your debt without worrying about things like court action or bailiffs.
Your monthly repayments are affordable and agreed in advance, so you know exactly how much you need to budget for. This is great because it gives you peace of mind and can help you to take control of your finances.
At the end of the IVA, any remaining debt is written off, so you can start fresh with a clean slate. This can be a huge weight off your shoulders and it can give you a much-needed financial fresh start.
IVAs are a confidential debt solution, so your friends, family and employer won’t know about it unless you tell them. This can be helpful if you’re worried about the stigma attached to debt and you want to keep your situation private.
What are the disadvantages of an IVA?
There are also some disadvantages to taking out an IVA, which include:
IVAs are legally binding agreements, so if you miss a payment or default on the terms of your IVA, you could be facing serious consequences such as having your assets seized or being made bankrupt.
IVAs can be expensive, as you’ll need to pay fees to your IP as well as make your monthly repayments. This means it’s important to make sure you can afford the IVA before you commit to it because if you can't, you could find yourself in even more debt.
There are certain debts you can't include in an IVA, such as student loans, child support payments and fines. This means you might still have to find another way to repay these debts even if you're successfully able to negotiate an IVA for the rest of your debts.
An IVA will stay on your credit file for 6 years, so it could impact your ability to get credit in the future. This is something to bear in mind if you're thinking about taking out an IVA.
Your creditors could reject your IVA proposal, which means you'll have to find another way to repay your debts. If this happens, it's important to seek professional advice so you can explore your other options.
Overall, IVAs can be a great way to get debt-free if you're struggling to repay your debts. However, it's important to remember that they're not right for everyone and there are some potential disadvantages to taking one out.
