Do you qualify for an IVA?
An Individual Voluntary Arrangement, also known as an IVA, is a debt solution where you agree to repay what you can afford to your debt each month, usually for 5 years. The solution is only available to people living in England, Wales and Northern Ireland. The Scottish equivalent (although there are differences) is a Protected Trust Deed. An Individual Voluntary Arrangement can enable a representative to put a proposal to your creditors on your behalf, which if accepted, will mean your creditors can’t take further action against you, you’re able to protect and retain assets, such as a house or car, and you’ll be debt free, once the solution is complete.
An IVA is a contract between yourself and your creditors which helps you repay what you can afford and write off debts (along with interest and charges) that are unaffordable. You make one monthly payment to all of your debts once the agreement is approved and no longer need to speak directly with your creditors.
Once you complete your Individual Voluntary Arrangement the remaining debt is cleared and you are debt free.
To determine if this solution is suitable you should first seek debt advice. You can receive assistance from our friendly charity advisers at Debt Support Trust by telephoning today on 0800 085 0226.
Entering an Individual Voluntary Arrangement
An IVA is a regulated solution requiring an Insolvency Practitioner to administer the arrangement. There are positives and negatives to the solution and we’ll make sure you aware of what these are and how they may impact on your personal circumstance. One negative that’s important to consider is that your credit rating would be impacted and the solution would remain on your credit file for 6 years.
If you qualify for an IVA it’s unlikely you’ll repay all of your debt, however if you come into a windfall, inherit money or earn more money during the term of the solution, then it’s expected you would pay this towards your debts.
Most people entering an Individual Voluntary Arrangement would not repay all of their debt and would experience an element of debt write-off. An IVA can be an alternative solution to bankruptcy, however if you’re thinking about entering an any debt solution it’s important you receive qualified debt advice first.
You may qualify for more than one debt solution and it’s important you have all the facts to make an informed decision. At Debt Support Trust we can help you understand what options are available to resolve your debt problems and help you enter the right debt solution.
You can try our debt test to see what solutions you qualify for.
What debts are included in an IVA?
Most unsecured debts are included, but if you’re unsure we’re here to help. An unsecured debt means a debt which is not tied / secured against an asset. For instance, a mortgage is secured against a house.
Unsecured debts which can be included in an IVA include:
- Credit card debts
- Personal loans
- Payday loans
- Catalogue debts
- Store cards
- Council tax arrears
- Most overpayment of benefits
- Utility debts, like gas / electricity / water bills
- Debts owed to friends/ family
There are some debts which can’t be included in an IVA, including:
- Mortgage / mortgage arrears
- Hire purchase agreements
- Court fines
- Child support arrears
- Student loans
- Fraudulent debts
- Secured loans
If you’re unsure if your debts can be included in an IVA it’s best to speak to a trained debt adviser who can assist you with tailored advice for your circumstances.
Benefits of an IVA
You could benefit from entering an Individual Voluntary Arrangement and some of the reasons people choose to enter the solution, are:
- It’s legally binding which means no further charges or interest could be added and your creditors could not take any further action once they have agreed to your proposal.
- You will only be asked to make one affordable payment each month and won’t have to pay multiple creditors directly.
- As long as you’ve made all your contributions you can expect to be debt free at the end of the solution, with no unexpected bills to pay.
- You are likely to be able to keep your home within the solution. Usually the Insolvency Practitioner will only be interested in any equity.
- You are allowed an expenditure in an IVA for things you may not have being able to afford previously, such as clothes, sports, hobbies and entertainment.
- There are items which are not considered assets and you retain. These include computers, phones, clothes, furniture, televisions, sofas and other household items.
- If you have not started to access your pension then you will not be expected to contribute this fund towards your solution.
- You will regain control of your finances and be able to plan for a debt free future.
Negatives of an IVA
There are some negatives to entering an Individual Voluntary Arrangement which you should be aware of. Some of the negatives to consider are:
- Any available equity in your house or other assets would be considered. You would never be expected to sell your home. If you can’t re-mortgage to release equity then your solution would be extended for 12 months in lieu of your equity.
- It’s legally binding so defaulting on the agreement would result in your IVA failing, which could mean your creditors may proceed with bankruptcy.
- Your income and expenditure will be reviewed on an annual basis which can mean your monthly contribution could fluctuate up as well as down.
- Your Individual Voluntary Arrangement would be noted within your credit file. The default on your credit file will last for 6 years in total from the date it was applied.
- A remortgage is likely to be on less favourable terms and if you are unable to gain a remortgage your payments may be extended for up to 12 months.
- Whilst your Individual Voluntary Arrangement will be listed on the Register of Insolvencies, most people don’t read this and won’t know you’ve entered a debt solution.
- If you have assets like shares, savings, endowments, ISAs, bond or stocks then these may need to be realised for the benefit of creditors.
Your bank could decide to take money from your account if they are one of your creditors. For this reason, if you’re entering any debt solution it’s best to open a new bank account, with a bank you don’t owe money to. You should not open an account with a credit facility. More advice on opening a bank account is available from our debt advisers.
Apply For An IVA
There’s criteria you need to meet in order to qualify for an Individual Voluntary Arrangement. While you may meet the criteria below, you may still be suitable for other debt solutions and may wish to consider these too.
The criteria to enter an Individual Voluntary Arrangement is:
- Your unsecured debt should be £5,000 or over.
- You must have a monthly disposable income which you can afford to pay towards your debts. If your disposable income would mean you can repay an IVA in less than 5 years then it may not be your best option.
- You must live in England, Wales or Northern Ireland
- To be accepted, at least 75% of your creditors must approve the proposal. If 75% of creditors approve your proposal then you will be protected from further action. If less than 75% approve your proposal then we would consider other debt solutions. By speaking to Debt Support Trust first we can help gauge whether a creditor is likely to accept or reject your proposal, based on their voting guidelines.
In An IVA...
Once you’ve entered an IVA there are a number of things you must do to remain compliant with the terms of the agreement. The two main requests are that you pay your monthly contribution towards your debt on time and that you submit paperwork to demonstrate you’re paying an affordable amount each month, when required. Usually you will be asked to complete an annual review and be requested to submit paperwork.
You should also maintain contact with the insolvency practitioner to ensure they are apprised of your current circumstances. If your income increases dramatically, for instance, then it could mean you need to pay more towards your solution on a monthly basis.
You cannot change your insolvency practitioner when you are in the Individual Voluntary Arrangement. Also, it’s important to state that if you decide to stop paying your debt solution then you could be discharged and the debts would return to you. You can cancel the plan, but it’s important you seek debt advice first.
How an IVA can help?
When Rob contacted Debt Support Trust, he really didn’t know what to do. Like so many people he had chosen to ignore all his debt. Now one of his creditors was threatening to take him to court. Rob owned a property and he was aware that if the case went to court then he could be forced to sell the property.
Rob’s debt level was approximately £50,000 and his equity in his property was £25,000. He did not want to lose the family home so we discussed with Rob the IVA debt solution to protect him from his creditors and allow him to make one affordable monthly payment. We explained all the pros and cons and explained the equity in his home would be assessed near the end of the solution. We explained that, if possible, 85% of his equity could be released by means of remortgaging. However, if he was unable to release the equity then his IVA would extend for a further year in lieu of his equity. This meant that instead of being 60 months, Rob’s Individual Voluntary Arrangement would be 72 months.
Rob was delighted with this as it meant he and his family could stay in the family home. He would make one monthly payment to his creditors and because it was a formal arrangement the creditors could take no further action against him. By contacting Debt Support Trust before his creditors took action against him we were able to help Rob with a formal solution which would protect him.
Sarah had come out of a messy break up with her partner and prior to the separation she had debts, but they were under control. Following the split with her ex-partner, her debts began to spiral out of control.
Sarah’s main concern was a loan that she had been guarantor for to help her ex-partner. Sarah’s ex-partner had since declared himself bankrupt and they were requesting her to make the full payment. Whilst the guarantor debt was not the largest of all the debts, it did worry her the most because they called regularly. Like many people who have joint loans she did not realise she was liable for the full amount. Many people are mistaken in thinking they are liable for only half. We looked at all the options for Sarah after assessing her income, expenditure, liabilities and assets. The positives and negatives of all options were discussed and due to the level of debt, protection from creditors and disposable income, Sarah decided that an Individual Voluntary Arrangement would be the best way forward for her.
Sarah is paying £135 towards her IVA each month and the solution will last for 60 months. The original debt was £19,000.
Mark worked in the financial industry when he approached Debt Support Trust for advice, so it was very important that we asked him to check his contract of employment before he entered any debt solution. While most contracts of employment won’t state you can’t enter a debt solution, some will, especially if you manage money or work in the financial services sector.
In this case Mark spoke with his HR department and they advised him that if he entered an IVA his employment would be safe.
Mark’s debt was just over £46,000 and he had been balance transferring his debts to keep payments affordable, however he was rejected for his latest balance transfer and couldn’t transfer again. This made his monthly payments unaffordable.
A friendly debt adviser completed a statement of affairs and assessed that Mark could afford to pay £270 towards a debt solution. After explaining about the various different solutions, Mark chose to enter the Individual Voluntary Arrangement and was able to keep his house and car.
When Debbie called the charity on a Friday evening she was distraught and felt isolated because of her debt situation. Debbie had £11,000 of unsecured debts to 3 credit cards and a number of smaller catalogue debts.
We began by listening to Debbie and understanding her circumstances. She was living alone, paying £450 per month in rent and couldn’t tell her parents about the debt.
A friendly adviser explained she was not alone and should not feel ashamed. Getting help with debt is a difficult thing to do, but support is available. Debbie had been unemployed for a period of time and turned to credit cards to help pay the bills, however, she also said that she had overspent when she was younger, so did have some existing debts before she was made redundant.
After gathering some information from Debbie we explained all the debt solutions she could be applicable for. Debbie carefully considered all of her options and decided she would apply for an IVA. Debbie was able to pay £120 per month towards a debt solution and decided an Individual Voluntary Arrangement for 60 months was the best option for her. In our last contact Debbie explained how she had felt the weight had been lifted off her shoulders, she was sleeping again and even told her parents about the debt.