Structured Debt Plan
Individual Voluntary Arrangement
An IVA is a popular debt management solution. It is available for people living in England, Wales and Northern Ireland but not in Scotland.
This solution can be ideal if you are a homeowner as it provides legal protection for your property. However, it is also available if you are renting. A key feature is that your monthly payments normally last a maximum of 5-6 years. The agreement then ends and any unpaid debt is written off.
Need specific advice to decide whether an IVA is right for you? Get in touch today to speak to one of our experts.
What Is An
IVA?
An Individual Voluntary Arrangement (IVA) is a formal agreement with your unsecured creditors to settle your debt over a fixed period - normally 5-6 years
If you are struggling to pay the debt that you owe, the IVA allows you to reduce all of the payments to your unsecured creditors and combine them into a single affordable amount. At the end of the agreement your creditors write off any debt that is still outstanding leaving you debt free.
The IVA is a formal legally binding agreement so once in place your creditors are not allowed to add further interest or charges to your debts.
They are also prevented from taking further action against you such as county court judgements, charging orders or a petition for your bankruptcy.
Generally speaking to start an IVA you will need to have unsecured debts of at least £12,000 and be able to pay at least £150 towards your debt each month. Although the standard length of an IVA is 5 years, it is possible to settle the agreement early if you are able to offer a lump sum to your creditors.
Note: The IVA debt solution is available for people living in England’ Wales and Northern Ireland. It is not available in Scotland.
IVA Key Facts
• All your debt payments are reduced and combined into one affordable amount.
• The Arrangement normally last for 5 or 6 years. Once complete any unpaid debt is written off.
• The minimum amount of debt you require to start an IVA is £7000. You also need to be able to afford a monthly payment of at least £100/mth.
• Once agreed, your IVA payments are not fixed. They can (and often will) increase if your financial circumstances improve or if you earn extra month through overtime or get a bonus payment.
How Will An
IVA Affect You?
The suitability of an IVA to solve your debt problem will depend on your individual financial circumstances and attitude towards repaying your debt.
Some of the main things you need to consider before going ahead are as follows:
What debts can be included?
You can include most debts in an IVA. This includes bank loans, overdrafts, credit cards and store cards.
In addition you can also include utility (such as electric, gas and water) arrears and council tax debts.
Money you owe to HMRC can also be written off using an IVA.
Note: An IVA can only be used to deal with unsecured debts. You can’t include secured debt such as a mortgage.
How much will your monthly payment be?
Generally speaking, to start an IVA, you will need to be able to afford a monthly payment of at least £100/mth.
This figure may be higher depending on the total amount of debt you owe.
Your actual payment will be based on your surplus income. This is the amount left over from your monthly income after all your reasonable living expenses have been accounted for.
For example
If your total monthly income is £3000 and your total monthly living expenses add up to £2700. Your surplus income (the amount left over) is £300. Your IVA payment would therefore be £300/mth.
Note: Your IVA payments are not fixed. They will increase during the Arrangement if your income improves or you do extra overtime or get a bonus.
How long does an IVA last?
A standard monthly IVA will last between 5-6 years. You will normally have to pay for 6 years if you are a home owner with equity in your property.
Remember, the length of your Arrangement could be extended if you miss any of your payments. These will be added at the end.
Note: It is possible to pay off an IVA early with a one off cash settlement. The money required has to come from a third party. Doing this can significantly reduce the time your IVA lasts.
What happens to your home?
If you are renting your, starting an IVA will have no affect on your home.
Your landlord will not be told. As long as you maintain your rent payments, you should have no issue.
Where you are a home owner, an IVA can be an ideal solution. This is because it gives your property legal protection.
In most cases, you will not be required to release any equity from your property (if you start your IVA after April 25).
Who will find out about your IVA?
An IVA is basically a private agreement. The only people who are specifically told are your creditors.
If you are a home owner, your mortgage company might also be informed. However, they will not be concerned as long as you maintain your mortgage payments. Your mortgage debt is not included in your IVA.
While your Arrangement is in place, your name and address is recorded in the insolvency register. This is accessible via the internet.
That said most people do not even know this list exists. As such, it is very unlikely any of your friends or family would ever find out about your IVA unless you choose to tell them.
How does an IVA affect your credit rating?
If you start an IVA, you will stop making your normal monthly payments to your creditors. This means that your accounts will go into arrears or further into arrears.
As a result of this your creditors are likely to record missed payments on your credit file and also issue you with a default notice which will also be recorded. In addition your IVA will be listed on your credit file.
The effect of this will be that your credit score is negatively affected. As a result you will find it difficult to borrow more money or get other credit facilities.
The record of your IVA will remain on your credit file for 6 years. After this, it will be deleted automatically.
Your credit rating will not start to significantly improve until the record of your IVA has been taken off your file.
Fixed Term Agreement
Normally lasts 5–6 years
One Monthly Payment
Affordable payments, usually over 5 years
Interest & Charges Stop
Your balances won’t keep increasing
Debt Cleared at the End
Any remaining debt is written off
How Does An IVA Affect
Your Credit Rating?
If you start an IVA, you will stop making your normal monthly payments to your creditors. This means that your accounts will go into arrears or further into arrears.
As a result of this your creditors are likely to record missed payments on your credit file and also issue you with a default notice which will also be recorded. In addition your IVA will be listed on your credit file.
The effect of this will be that your credit score is negatively affected. As a result you will find it difficult to borrow more money or get other credit facilities.
The record of your IVA will remain on your credit file for 6 years. After this, it will be deleted automatically.
Your credit rating will not start to significantly improve until the record of your IVA has been taken off your file.
What Does An
IVA Cost?
There are no direct costs associated with an IVA.
If you use this type of debt of debt management solution, all you should have to pay is your agreed monthly payment.
That said, the company that implements and manages your IVA will take fees directly from the payments you make.
Upfront Fees
You should not have to pay any fee up front to start an IVA.
Any advice you receive about whether and IVA is the right solution for you should be provided free of charge.
IVA Company Fees
Once your creditors accept your IVA, you must start to make your agreed monthly payments.
Your IVA Company - more specifically the Insolvency Practitioner (IP) assigned to your case - can then deduct their standard fees from the payments you make.
These fees are as follows:
- Nominee Fee
This fee is taken to cover the cost of proposing and agreeing your IVA proposal with your creditors.
The Nominee Fee will vary depending on the nature of your case. As standard it will be around £2000-£2500. However, it could increase in more complex cases – for example if you are self employed.
You do not have to pay this fee directly. It is taken from the normal payments that you make into your IVA.
- Supervisor Fees
These fees are to cover the ongoing management of your IVA every year that it is in place.
The Supervisor Fees are normally based on 15% of the amount that you pay into your IVA each year.
As with the Nominee Fee, it is important you understand that you do not have to pay these fees directly. They are taken from the normal payments that you make into your IVA.
Most Debts Included
Loans, cards and tax debts covered
Managed by an Expert
Overseen by a licensed Insolvency Practitioner
Home Protected
Equity is not usually not required
Protection from Creditors
No more court action or bailiffs
Advantages of an
Individual Voluntary Arrangement
There a number of advantaged to an IVA. Their relevance to you will very much depend on your individual circumstances.
1. Debt written off
Normally your IVA payments will last for 5-6 years.
At the end of the agreed term, as long as you have maintained all the terms of the agreement, your remaining unsecured debt will be written off.
This means that you know exactly when your IVA will end and when you will be debt free.
2. Legal protection from creditors
Once your IVA has started, your creditors are no longer allowed to take any action against you to collect their debts.
They must stop writing to you and calling you.
In addition you are legally protected from creditors trying to take additional enforcement action against you. They can no longer apply for a CCJ against you or instruct a bailiff to visit you.
3. Interest and charges frozen
Your creditors no longer add interest and charges to your accounts once your IVA has started.
4. HMRC Tax and VAT debts included
As long as your IVA proposal is reasonable, HMRC will agree to it. This means any personal tax debts you have can be included.
An IVA can therefore be an ideal debt management solution if you are self employed or run your own business.
5. Legal protection for your home
An IVA can be an ideal debt management solution for homeowners. This is because it gives legal protection for your property.
Your home is not at risk (unlike if you go bankrupt). You will not be expected to release any of the equity (given your IVA starts after April 25).
Your creditors are not allowed to take further enforcement action such as applying for a Charge against the property.
Disadvantages of an
Individual Voluntary Arrangement
It is important to understand that as well as benefits, starting an IVA can also have some disadvantages.
Before making a decision to start, you need to understand these in the context of your circumstances.
1. Monthly payments can increase
Your IVA payments are not fixed. They can (and will) increase if your financial circumstances improve. In other words, if you earn more than income figure listed in your original IVA proposal.
In certain circumstances, it is possible to reduce the amount you pay into your IVA. For example if your finances become worse. However, this will normally go hand in hand with an extension of the agreement overall.
2. Windfalls must be paid into the Arrangement
If you receive a windfall during your IVA, this must be paid into the agreement.
Common examples of windfalls are:
• Inheritance payments
• Compensation payments
• Funds released from the sale of your property
Where you pay a windfall into your IVA, is does not mean the agreement is paid off early. In most cases, you will still have to maintain your normal monthly payments.
The result is simply that you pay back more to your creditors than was initially agreed.
3. Relatively inflexible
Once you have started an IVA you cannot simply decide to reduce your monthly payments.
Significant changes can only be made with the agreement of your creditors.
If your circumstances change any you are no longer able to make your payments, your IVA may fail and you will still be liable for your debts.
4. Negative effect on credit rating
When you start an IVA, a record of the agreement will be added to your credit file.
The effect of this will be that your credit rating becomes significantly worse and you will find it much more difficult to borrow money or get new credit agreements.
Your credit rating is unlikely to improve until the record is removed from your file. This happens automatically 6 years from the IVA start date. There is no way to reduce these time scales.
Let's Talk
If you need advice and help with your personal debt, get in touch with us today. Talk to us in confidence. Take control of your finances. Get on the way to becoming debt free.
Wilmott Turner Financial Services Limited
Company Registration Number: 692502
Call us now on
0800 088 7376
Drop us a message @