What is an IVA? Should I sign one? What are the advantages and disadvantages?

This blog with give you a brief insight into what an IVA is, how it can help you, how you can set one up, the benefits and also some important things to consider before signing an IVA as they are not for everyone and shouldn’t be entered into lightly. Hopefully it should answer any questions you may have and put your mind at ease.

What is an IVA?

Firstly IVA stands for an Individual Voluntary Arrangement. An IVA is a legal document which will act between you and all of your unsecured creditors. It prevents your unsecured creditors taking any action against you, such as raising and enforcing a County Court Judgement (CCJ), if you were to fall into arrears with your payments. It also protects you from your unsecured creditors, calling you or passing your case to a debt collection agency, adding additional interest or charges, all the interest of your debts will be frozen.

When you enter into an IVA your creditors will agree to accept an affordable monthly payment based on you or your households income and expenditure over a set period, usually 5 years. As long as you keep up with your repayments during this period, any remaining unsecured debt will be written off and you will end up paying less than you originally owed.

IVA’s have been around since 1986 when they were first introduced to offer small businesses help with their financial problems and an alternative to bankruptcy. Over the past few years in the current financial climate they have become a lot more popular and can be taken out by anyone who lives in England, Wales or Northern Ireland who has unsecured debts of at least £15,000 or more, sometimes debts of slightly lower than this can be considered depending on your personal circumstances. IVA’s are not available in Scotland, you can consider something called a Protected Trust Deed if you have debts above £5000 or a DAS Debt Arrangement Scheme, we will cover these two topics in future blogs.

How can I set up an IVA?

An IVA is a legally binding agreement and a form of Insolvency so you cannot set one up on your own. You will need help from an Insolvency Practitioner. IVA’s are not suitable for everyone’s circumstances and we would recommend that you get professional, impartial advice before taking one out. Our debt advisors can provide free and realistic advice that you need to find out which is the best debt solution for you.

Please beware, there are loads of companies out there who will charge you for setting up and administering and IVA for you. These companies are basically making a “quick buck” out of your misfortune, there should be no upfront charge to you. The Insolvency Practitioner will take a fee for administering the IVA, however this will be deducted from the amount you pay each month and the fee will be agreed between the Insolvency Practitioner and your creditors at the time of you entering into the IVA, so you should have no upfront fees to pay at the start. 

We will asses your assets along with your income and expenditure and calculate how much you can afford to pay back each month to your creditors and submit this information to our Insolvency Practitioner. Our Insolvency Practitioner will then put together a proposal to present to all of your unsecured creditors, we will ask you to sign this to confirm it’s the best offer you can make. Its very important that you are completely honest about your circumstances so our Insolvency Practitioner is not submitting false information. Our Insolvency Practitioner will then send the proposal to each of your unsecured creditors. A “Meeting of Creditors” will then take place during which your IVA proposal will be accepted or rejected.

If accepted and you decide to proceed our Insolvency Practitioner will need to apply to the court for something called an “Interim Order”. This stops your unsecured creditors from starting bankruptcy proceedings or taking out any other court action against you such as County Court Judgements.

Our Insolvency Practitioner will send you a “Statement of Affairs” once a year to review your finances for any changes in your circumstances. They will then send an annual report to you and your creditors. Once your IVA is complete any remaining unsecured debt will be written off.

How can an IVA help me?

In the current financial climate many people are struggling to repay debts which were accrued in the “boom” from 2000 to 2007. This is due to people being made redundant, maybe securing new employment but on a lesser wage than before, or the rising cost of living coupled with employers freezing salaries during the recession. This has had an effect on the amount of money we earn and have left in our pockets at the end of each month and having an overall squeeze on our incomes, because of this, an IVA can be a good solution to people’s debt problems.

An IVA can give you some breathing space and make repaying your debts easier and more manageable as all of your debt repayments will be combined into one reduced, affordable monthly repayment.

An IVA can make your life a lot less stressful as long as you keep up the monthly repayments and stick to the terms and conditions of the IVA, your unsecured creditors are prevented by law from contacting you. This obviously means all the letters, threats, telephone calls and court actions you may have been receiving will stop, leaving you free of worry and hassle.

It will also stop any actions by unsecured creditors to try and make you bankrupt or applying for County Court Judgements and having them enforced by High Court Enforcement Officers or Bailiffs, visiting your property and trying to uplift good s to the value of the debt, which can be extremely stressful and embarrassing.

Once you have repaid your IVA over the specified period your remaining debts will be written off, so you can make a clean, fresh, financial start again.

How would an IVA affect me?

As we have previously mentioned IVA’s are not for everyone and we would recommend that you seek independent, free & impartial advice before taking one out. One of our fully qualified debt advisors can provide this for you.

You may not be eligible for an IVA, they are generally suitable for people with a sustainable regular income, in employment or receiving an income from a pension. If you are unemployed ifs very unlikely you will be considered as you will not have enough income left at the end of the month to cover the minimum monthly payment, usually around £200.

You should consider carefully the possible consequences of entering into an IVA for your personal, professional and financial life.

This can include the following points –

1. Your credit rating will be affected for six years and it’s very likely once you have come out of the IVA that you will find it extremely difficult to obtain credit. Your credit history will repair itself over time and some lenders may offer you credit but with a small credit limit and a high interest rate.
2. You will need to keep a reign of your finances and remain within a tight budget during the full term of the IVA
3. Before signing an IVA you should check with your employer on wither it will affect the terms of your employment. If you work in Financial Services and your employers are regulated by The Financial Conduct Authority they may have to declare the IVA to them. Other professions that maybe affected are accountancy, solicitor, police and the armed forces.
4. If you receive any lump sum payments during the term of the IVA, such as PPI Claims, an inheritance or a bonus from your employer, you will have to declare these and pay them to your IVA.
5. The IVA is recorded on the Insolvency Register and can be viewed by the general public, although not a lot of people know this and its unlikely that your neighbours of friends would check this out to see if you appeared on it.

IVA Benefits

The amount you repay is based on what you can afford

At the end of the IVA term your remaining debt will be written off

Once the IVA had been set up and agreed all the creditors are legally bound by the terms of it. As long as you keep up the repayments, all the interest on your debts are frozen, no charges can be added and your creditors legally cannot contact you, so it stops all the annoying phone calls and letters

Provides an option with fewer restrictions than bankruptcy, which is more severe

If you are a home owner you will usually be allowed to keep your home as long as you keep up the mortgage repayments

IVA Disadvantages

Can affect your employment depending on your profession

Your locked into making the monthly repayments for the period of the IVA

If you do not stick to the repayments and terms and conditions of your IVA you maybe made bankrupt

If your income improves or your receive any windfalls during the period of the IVA you must declare this and its likely that they will have to be paid to the IVA

You are not permitted to take out any form of unsecured credit during the period of the IVA, although this would be very difficult to do so

If there is equity in your home you may have to re-mortgage or make additional payments each month to your IVA to compensate for this

IVA’s are recorded on the Insolvency Register which the general public have access to

Should you wish any further information, want to set up an IVA, or just wish a general chat with one of our debt advisors with regards any issues you maybe having with your creditors, call one of our fully qualified debt advisors on 0800 0191 278 or email us at enquiries@debtadvisoryservice.co.uk

What family wouldn’t benefit from making clever cuts to their budget and saving money without hurting their standard of living?

1. Watch what you are spending on food. Work out a budget and stick to it. Try the cheaper discount shops to buy basics like rice, pasta, tins etc.  You can always make a meal if you have the basics in your cupboard.
2. Double your recipe so you have leftovers.  This makes sense as it means you can buy bulk and you save time and money. Freeze leftovers, you can use these on days you might have opted for a takeaway.
3. Make packed lunches – much cheaper than buying the pre-packed cardboard ones from the shops. Much tastier too.
4. Have you thought about having a clothes swapping party? Ask your friends to bring clothes that they are tired of.  Also works if you all have children near the same age.
5. In the colder months instead of turning the heating up, try using warmer clothing, extra blankets and hot water bottles.  You can save hundreds over the winter.
6. If you usually see your hairdresser every 6 weeks, try going every 8 or 10 weeks. That’s saves you the cost of 2 to 3 cuts a year.
7. Did you know that most restaurants can charge up to double for dinner rather than lunch? If planning an outing with friends and family, try planning around a lunch.  You will soon notice the difference.
8. Instead of using your tumble dryer to dry clothes – hang them out to dry on your line. Tumble dryers are expensive to use.
9. Sell unwanted toys and gifts on Ebay.  A few pounds here and there can help with buying new items for the kids.
10. Visiting your coffee shop everyday for your favourite latte can soon mount up. Try cutting back or buy your own insulated cup and make your own at home.