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How An IVA Works 

 March 6, 2022

By  admin

If you have debts to pay off, determining the best repayment option can be a challenging decision. There are a number of options available, and your selection will probably be impacted by how much money you owe, as well as the amount of money and assets you have to your name.

One option available is an IVA, which is short of Individual Voluntary Arrangement. But what is this? And, how does it work?

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An IVA is basically a formal agreement with your creditors - the companies and people you owe money to. As per the agreement, you are able to repay your debts through regular payments, which are typically every month, over a period of time, usually 60 months. This may be a viable option for your situation but it is imperative to fully understand IVAs and how they work before agreeing to one.

How does the IVA process work?

An IVA is proposed through, and then supervised by, a duly authorised and qualified Insolvency Practitioner (“IP”). This person will work with you to agree on a suitable payment plan, i.e. how much you will pay per month and for how long the payments will continue. The IP will be an intermediary between yourself and your creditors, first negotiating with the creditors to approve the proposals, and then liaising with them during the term of the arrangement.

All it takes is for 75% of the creditors at the decision procedure to approve your proposals. You do not need everyone to agree. So, if you owe money to 10 different companies, and 2 of them do not accept the proposal, and they hold less than 25% of the vote, then the IVA will still be approved, and they will be included in the IVA.

After the IVA is approved, you will then make your monthly repayments to the IP, rather than the creditors. Your IP will be responsible for splitting the money between the creditors. This means you are only going to have one payment to make per month, rather than having to make several. 

It is important to note that IVAs are not available in Scotland. They are available in England & Wales and Northern Ireland. 

An IVA proposal is usually based on you being able to afford a reasonable payment to your creditors, over a period of time, although in some cases, creditors may accept a one off lump sum payment through an IVA.  The payment required for an IVA can vary from provider to provider, however, if you are unable to afford a minimum of £76, then other options for dealing with your debts may be more appropriate.

You will need to display that you have regular income over the long term, and repayments will typically cover a period of either 60 or 72 months. 

It is important to realise that an IVA is an agreement that is legally binding between yourself and the individuals you owe money to. This means that once this agreement has been approved, it cannot be cancelled.  The IVA would either need to be terminated, or an application would need to be made to court.

Understanding qualification for an IVA

In order to qualify for an IVA, you need to demonstrate that you are unable to afford to pay your creditors, as the payments fall due. Although there is no formal criteria, and criteria can vary from provider to provider, usually if you have less than £6,000 or are unable to afford a payment of £76 each month to your creditors, then it is likely other solutions are more suitable.

An IVA can be helpful to help you deal with the repayments, ensuring you are paying an affordable and realistic amount per month to your creditors. 

However, it is important to realise that specific criteria must be met, and not everyone is going to be eligible for an IVA. If you do not keep the repayments up, there are risks involved, so you do need to make sure that you can afford the repayments. There is the possibility the creditors may  ask for the IP to petition for your bankruptcy if you are not able to keep up with your repayments, however, this is uncommon. 

The debts that you can pay off with an IVA

There are a number of debts that you can include in an IVA, while some debts are not going to be eligible. For example, some of the debts that can be paid off with an IVA include the following:

  • Any money owed to the HMRC, including National Insurance contributions and Tax
  • Store and credit card debt
  • Mortgage shortfalls
  • Hire purchase debts
  • Council tax arrears
  • Catalogue debts
  • Personal loans
  • Overdrafts

As mentioned, some debts cannot be included in an IVA. This includes the following:

  • TV Licence arrears
  • Social Fund loans
  • Child Support or Child maintenance arrears
  • Specific kinds of car finances, where you wish to keep the vehicle on finance
  • Magistrates’ court fines
  • Student loans

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