What is an IVA (Individual Voluntary Arrangement
The truth about Individual Voluntary Arrangements (IVAs)
A guy contacted us a while back, he had many questions about IVAs (Individual Voluntary Arrangements). He’d got himself into trouble with credit card debt and he was in the process of getting an IVA in place to try and get back some control. Individual Voluntary Arrangements are a serious financial commitment and he didn’t need to take such drastic action for his Unsecured Debts.
He just needed access to more information about what he could do. Understandably, he was panicking and going with the first thing he found, that sounded logical to give him peace of mind. The problem is, when you lift the lid on IVAs there is a lot to consider.
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We want to make sure you have all the info on what an Individual Voluntary Arrangement is, how they work, and the impact they may have before you even consider getting into one.
Let's first start with what it is...
What is an IVA and how do they work?
Starting at the beginning, IVA’s were introduced by the UK government in the 1980’s under the 1986 Insolvency Act, as an alternative to bankruptcy. The term IVA stands for Individual Voluntary Arrangement, they are a legally binding agreement that you can make with your creditors to pay off all, or part of your debts. The idea behind IVAs was to help people with serious debt issues to protect their assets, which if made bankrupt they would risk losing.
You might think this sounds like a great alternative but as with everything there are ‘ifs’ and ‘buts’ to seriously consider. The biggest ‘but’ being, if you are unable to make payments towards your IVA, the creditors still have the ability to make you bankrupt, making you no better off financially than when you entered the IVA. Let’s find out more about how an IVA works.
How does an IVA work?
The Individual Voluntary Arrangement – IVA – is setup through an Insolvency Practitioner. As part of the agreement, you’ll be asked to share full details of your financial situation, including any assets, income and critically all the creditors that you owe money to. The IVA involves an agreed monthly payment which the Insolvency Practitioner is responsible for splitting between the list of creditors. If 75% of more of your debt is with one creditor, they need to agree to the IVA for it to be approved.
If you’re entering into an IVA, ask your Insolvency Practitioner, if you’re entitled to a payment break, as we’ve seen people secure up to 9 months.
As you’ve probably guessed this isn’t a free service, with most Insolvency Practitioners charging an initial setup cost and monthly fee for ongoing management of the monthly payments to your creditors. It’s so important to make sure you research all the costs; you don’t want to enter into an arrangement like this if the additional costs are going to make your financial situation even harder for you to handle.
The restrictions and pitfalls of an IVA
When you setup an IVA there are still some restrictions you need to be aware of that could have a big impact on your life, so it’s important to consider these aspects before deciding to make an application. Restrictions the guy we mentioned earlier just hadn’t considered at all.
To start with, an Individual Voluntary agreement typically lasts 5-6 years and comes with various restrictions that can make it more challenging to get back on your feet financially.
- In most cases you won’t be able to borrow or obtain credit for more than £500 without obtaining permission from the Insolvency Practitioner first. There are some exceptions, but these are limited to things like public utilities.
- It’s also important to note that not all your debts can be covered under an IVA. Debts like Mortgages, Secured Debts, Student Loans, court fines, child maintenance/support arrears and TV licence arrears, are treated differently and all need to be paid as they will not be included as part of the IVA.
- Not only that, but you’ll be added to the publicly accessible Individual Insolvency Register (IIR) for the duration of the agreement, and you’ll only be removed three months after the IVA has ended.
What will the impact be on my Credit File and Credit Rating?
The IVA will remain on your credit file for six years from the date the IVA was approved. In terms of obtaining future credit, an IVA will affect you in a similar way to bankruptcy. Unfortunately, if you’ve had an IVA, you may find it very difficult to obtain credit for the six years that it sits on your credit file as your credit rating would have gone down.
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The information in this article is considered to be true and correct at the date of publication.