If you have unsecured debts of more than £7,000, you could be very attracted to the idea of securing an individual voluntary arrangement, known as an IVA.

However, you might also understandably have many questions about this debt relief scheme and what it involves. 

You might have seen many companies offering debt solutions that claim to be able to rid you of debt in delightfully little time. 

What Is An IVA?

An IVA (individual voluntary arrangement) is a formal and legally binding agreement between a debtor and their creditors. The terms of the agreement are that the debtor will, over a pre-agreed period of time, pay back their unsecured debts at a rate that is financially manageable. The IVA will only cover unsecured debts, and there are certain debts, such as Student Loans, child maintenance arrears, and court fines that cannot be included.

If you have unsecured debts, you can check your eligibility by approaching a licensed insolvency practitioner such as NDH Financial. Your practitioner will work with you to determine what debts you owe, what assets you own and what you can afford to pay towards them. Once this initial assessment is completed, the insolvency practitioner will be able to tell you whether an IVA may be an appropriate solution. If the IVA is appropriate, and you do want to proceed, you will then work with the insolvency practitioner to prepare the necessary paperwork. This paperwork is then sent to your creditors for their approval.

If these creditors approve the IVA, the insolvency practitioner will proceed to set up and supervise it. Rather than make separate repayments to individual creditors, you will — as per the IVA’s terms — pay a single monthly payment to the insolvency practitioner.

This is intended to ease the ongoing burden of paying back debt — and you will agree to pay in monthly instalments for the IVA’s entire term, which can be 5 or 6 years. During this time, you will also need to comply with any other terms, such as providing further income and expenditure documentation every 12 months. Once you have made the required payments, and complied with the terms, the IVA is deemed completed. Any remaining, unsecured debt that was covered by the IVA will then be written off. 

You can use an IVA to repay most unsecured debts, including those amassed from credit cards and store cards. Furthermore, as long as you comply with all conditions of the IVA, the creditors that approved it will be legally barred from pressuring you to repay your debts at a faster rate.

Can An IVA Be Paid Off Early?

If you receive a windfall, such as inheritance, whilst your IVA is still in place, this money will be paid into your IVA, which may result in it finishing early.  Alternatively, a third party, such as family or friends, may be willing to provide you with a lump sum to offer to your creditors.

If the money is a windfall or inheritance, it will be classed as an asset in your IVA. As a result, all of the funds will need to be paid into the IVA anyway.  If the funds are sufficient to pay your debts in full, plus the fees and costs of the IVA, the IVA will end early and you will not be required to pay any further funds in.  If it is not enough to pay your creditors in full, then you will continue to make payments into your IVA, until you have paid in full, or the agreed payment period ends.

Usually, early IVA payments for debts are made as a result of friends or relatives gifting a debtor money.  The lump sum is offered to creditors in exchange for an early end of the IVA, and would require them to accept it, before the funds are paid in.   As this money is from a third party, creditors do not have an automatic right to it, and creditors will take into account your ability to make further payments, and the payments already received into the IVA.  Although creditors will usually look for a lump sum offer that provides them with a similar return as the proposal they originally agreed, there is no set amount that should be offered, and you should instead make your best offer.

After a certain period — typically three years — of the IVA, a loan would be another option for paying it off early. There are specialist lenders who work with people in IVA’s to obtain loans for this purpose.  However, as using a loan for this purpose would not necessarily be the best strategy for everyone, you should first talk to your insolvency practitioner about the possibility. 

It is always attractive to pay off debts as early as practically possible. However, in any case, your credit report will continue to list your IVA for six years following its approval date.

Can An IVA Affect My Job?

It is up to you whether you let your employer know you have an IVA. Nonetheless, in some professions and industries, employment contracts can require holders of an IVA to disclose it.

Most employers don’t undertake regular credit checks on employees — who, in any case, would need to give express permission beforehand for this to happen. 

In most instances, a worker would not be risking their job to any extent by taking out an IVA. Still, there remain certain jobs — like those of insolvency practitioner, accountant or banker — where the employee might first need their employer’s, or licensing body’s permission before seeking an IVA.

The IVA was introduced, in part, to give people in occupations that specifically prohibit bankruptcy, such as the armed forces or solicitors, a formal solution for dealing with their debts. Therefore, an employer, or a licensing body, may allow you to enter an IVA, even though you are prohibited from entering into bankruptcy.

The good news is that, for most jobs, applicants are not subjected to credit checks. The bad news is that some positions — like those of accountant or solicitor, and posts in the police or fire or prison service — do come with stringent financial vetting procedures. Hence, these particular jobs can be more difficult for people with an IVA to obtain, and you should always check with your employer or licensing body, before proposing an IVA.

If a potential employer asks whether you hold an IVA, you should be upfront and honest with your answer.

Can An IVA Take My Inheritance?

An inheritance is where, when someone passes away, another person named in their will receives money or assets that belonged to the deceased. If you receive an inheritance of over £500 during your IVA, you will need to contribute the cash — or a share of an asset — to the IVA. 

Your IVA is likely to include a windfall clause stipulating this — meaning that, if you do receive an inheritance of more than £500, you are required to notify the insolvency practitioner. The inheritance will subsequently be paid into the IVA. If the money is enough to pay your creditors in full, plus the fees and costs of the arrangement, the arrangement will be completed.

If it isn’t, you will need to continue with the pre-agreed IVA payment plan. Though IVA rules say that any money of more than £500 inherited during the IVA should be paid into it, your insolvency practitioner might be able to permit you to keep some of the inheritance in certain circumstances, or, they may be able to liaise with your creditors to allow you to keep some of the funds, but this would depend on creditor approval. This would only be in limited circumstances, and there would need to be a legitimate reason, for example, emergency house or vehicle repairs.

If you inherit £500 or less, then you will not have to introduce these into the IVA, however, you should still make your Supervisor aware.

Whatever the circumstances, if you do inherit during an IVA, you should discuss with your insolvency practitioner who will be able to advise you of the options available to you.

IVA vs Bankruptcy: What’s The Difference?

If excessive debt has left you unable to pay the required payments, you could opt for one of the following two statutory debt solutions: 

• Enter into an IVA
• Petition for bankruptcy

With an IVA, you would formally agree with your creditors to make an affordable repayment over a fixed period, typically five or six years. Before this agreement comes into force, 75% of your creditors who vote on the IVA will need to approve it. 

In order to declare yourself bankrupt, you would need to complete — and pay for — an online application. Once the application has been submitted, and the order is made, you will then be declared bankrupt. An OfficialReceiver or Trustee will endeavour to sell assets of yours so that your creditors can be paid, for example, a property that you own, or a car over a certain value, but some assets — like reasonable household items, or items required for you to earn a living, provided they are of a reasonable value — will not be touched. 

A bankrupt person who remains able to pay their creditors will be required to pay into an income payments order or agreement over three years, although you will usually be discharged from bankruptcy within 12 months, provided you comply with the Official Receiver or Trustee.

Whether you take out an IVA or go bankrupt, the action will leave a record on your credit file for six years. Also, your details will be on the individual Insolvency Register until three months after the IVA has closed or bankruptcy has ended. 

With bankruptcy, you will have to give up possessions of value, like a property or vehicle, to pay off your debt. However, an IVA can, subject to creditor approval, protect all of your assets.

Can I Get A Mortgage With An IVA?

Generally, obtaining a mortgage when repaying an IVA is difficult. Taking out a mortgage once the IVA has been fully paid off or is settled can be easier but still has some complications. You should therefore always seek independent financial advice when considering obtaining a mortgage.

Your chances of securing a mortgage will largely depend on the lender. Some lenders will turn down any applicants who have ever held an IVA. If you do have an IVA, certain lenders might decide against lending to you until it has been taken off your credit file. 

Typically, this occurs after six years — but keep in mind that, even if your credit report no longer shows an IVA you once had, you would still need to tell a mortgage lender about it if they ask. 

There are specialist lenders and brokers ready to offer mortgages to people who have had an IVA or still have one. However, these mortgages may come with higher interest rates and require a larger deposit than mortgages available to borrowers who have never held an IVA. 

Usually, the more time that has passed between you completing your IVA and applying for a mortgage, the likelier you are to be lent one. 

Therefore, the simplest strategy could be for you to wait just two years after the IVA has elapsed before you seek a mortgage — by which point, lenders might no longer class the IVA as recent.

IVA For Self-Employed

Self-employed people can use an IVA (individual voluntary arrangement) to settle an array of unsecured debts. These include such debts amassed in either a personal or work capacity — with credit cards, unsecured loan repayments, unpaid self assessment tax, and unpaid business rates among the costs that can be covered.

There remain certain debts — like secured debts and child maintenance arrears — that could not be accounted for by an IVA. Neither would it be possible for you to use an IVA to pay off or settle debts related to a limited company, although if you have personally guaranteed a debt, they will not be able to take action against yourself personally.

For self-employed people experiencing financial hardship due to onerous debt, an IVA can be a more attractive remedy than bankruptcy. You could struggle to continue trading if you go bankrupt, as some of your assets — albeit usually not including reasonable tools of trade — will be seized. Subject to your occupation, there may be other practical restrictions, for example, you will not be able trade unless it is in the name you were adjudged bankrupt, or a lease for a premise you operate may be terminated due to the bankruptcy. If you are a company director, you will not be allowed to continue acting as a director, without the leave of court.

In contrast, with an IVA, you can avoid restrictions that would arise because of bankruptcy. For example, subject to creditor approval, you wouldn’t have to lose your assets. The conditions of an IVA can also afford you more flexibility in your dealings with trade creditors and suppliers.

Before you can start utilising an IVA, you will have to ask a licensed insolvency practitioner such as NDH Financial to set one up on your behalf. The practitioner can assess your situation and business and help you to determine an affordable payment plan for the IVA.

IVA vs Debt Relief Order

An IVA, or individual voluntary arrangement, is a formal arrangement where a debtor agrees to keep up with regular payments over a fixed period in order to clear debt to creditors. The payment period is typically five or six years, and any debt left over after this time is written off, provided you have complied with the terms of the IVA. 

One alternative to an IVA is a DRO, or debt relief order. If you seek a DRO, you will need to apply for one — through an approved intermediary — to the official receiver, who will assess your eligibility for a DRO and, if you do obtain one, assist you while it is active. 

The DRO itself will last for 12 months, or what is known as the moratorium period. During this period, you will need to keep the official receiver up to date with your financial circumstances, as any change may affect your eligibility — and, once the DRO has completed, you will be discharged from any remaining debt. You will need to make sure that you disclose all of your unsecured debts as part of the application, as they cannot be added once the DRO is in place.

IVAs and DROs therefore have many similarities. For example, in both instances, any interest and charges on the debt will be frozen while the formal debt solution is in place, and at the end of the process, any remaining, qualifying, unsecured debt is written off.

However, when deciding which is best for you, the following counts:

• IVA: Generally better for people who are capable of making a monthly payment of over £76 and have unsecured debts of over £7,000, or have assets worth more than £2,000. 
• DRO: Better suited to people who are unable to afford £75 per month, do not have assets over £2,000 and have less than £30,000 of unsecured debt... 

How An IVA Affects Your Credit Rating

For as long as you have an IVA, details of it will be on the public register known as the Individual Insolvency Register, and remain on it until three months after the IVA has ended. Referring to the register, credit reference agencies will also store your IVA details on your credit reference file. 

Before deciding whether to lend to you, a company or individual will look up your credit rating by checking your credit reference file. Since your credit details are supposed to help lenders judge your likely ability to pay back the money, you will reduce your credit score if you take out an IVA. 

To a lender, the sight of an IVA on your credit report would be a warning sign that you have previously struggled with paying debt and so could constitute a high-risk borrower. As a result, an IVA can threaten your success in applying for credit such as a mortgage, loan or credit card. This risk is temporary, however.

Whilst the IVA is active, you may be denied credit altogether or offered it with a higher interest rate attached. However, while an IVA can make a short-term impact on your borrowing ability, note that, six years after the IVA’s start date, your credit report will cease to include the IVA details. 

Basically, the longer it has been since you arranged an IVA, the less trace it will have left on your credit score.

Can An IVA Be Refused?

If you are weighed down with debt and eager to ease this burden by applying for an individual voluntary arrangement (IVA), you may wonder whether it would be possible for your IVA application to be turned down — and what options would remain available to you if it was. 

To arrange an IVA, you would need to first get in touch with an insolvency practitioner (IP), who will advise you on how likely your application is to succeed. Insolvency practitioners are experienced in negotiating with creditors to work towards securing their approval for individual voluntary arrangements. 

Hence, at NDH Financial, our IP knows from experience what is likely to be required before creditors grant their approval. If the P has good reason to doubt that the IVA will be approved, they will let you know and at this point, you may want to consider other options for dealing with your particular situation. 

While individual creditors can differ in what they demand from an IVA proposal, many will be aware that, if you resorted to bankruptcy instead, they would be unlikely to recover much, if any, money from you. In comparison, agreeing to an IVA could be a more appealing prospect for them. 

This is because, for the creditor, an IVA would usually incur far fewer costs than bankruptcy — meaning that, in an IVA, more money will be paid to creditors after the fees have been paid.

How An IVA Works

An IVA is set up by an Insolvency Practitioner, who is a qualified professional that specialises in processes designed to help over indebted individuals and companies.. They will charge fees for their part in setting up and helping you through your IVA. These fees are paid from the payments you make into an IVA, although some Insolvency Practitioners may request a contribution to their fee upfront.

You will work with an Insolvency Practitioner to determine an affordable payment to offer to your creditors.

The repayment plan commonly consists of affordable monthly payments paid to the insolvency practitioner who will then hand out the money to your creditors, keeping their own fees out of the money you have given them. 

What an affordable payment consists of is figured out on the basis of your household income less your household expenses, which is also called your disposable income. Any regular source of income is taken into account, however, some sources of income may not be appropriate for an IVA. .

Provided that you follow the terms of the IVA, the agreement will act as a form of legal protection and will shield you from unsecured debt creditors and bailiffs. Provided you comply with the terms of the IVA, any remaining, qualifying unsecured debt will be deemed settled at the end of the IVA.

If you’re considering applying for an IVA, NDH Financial offers a no obligation consultation service to help assess if an IVA is a suitable solution for you.

IVA: How Long Does It Take to Set Up?

If you are eligible for an IVA and would like to take advantage of one, you will need to ask an insolvency practitioner (IP) to set up one for you. From this point, you can realistically expect to wait between three and six weeks overall before the IVA is up and running. 

The process of setting up an IVA comprises a number of distinct steps. After you initially contact an IP, they will work with you to assess your financial circumstances and determine a monthly payment you would be able to make in a bid to clear your debts. 

You will be asked to provide various forms of paperwork, like wage slips and bank statements, so that you can prove your financial situation. The IP will subsequently assist you in preparing the paperwork, known as a proposal, for your creditors to consider. 

The paperwork preparation can take as long as a week, and then creditors are usually given up to three weeks to decide whether to approve the proposal. 

Exactly how long it takes for an IVA to be implemented can depend on various factors. For example, it could take longer than you had originally expected to gather all of the information required for the proposal, or creditors might need additional time to make their minds up about it. 

IVA: Can I Keep My Car?

Usually, entering an IVA would permit you to keep your car if it is required for family- or work-related transport and not excessive in value. This remains the case even if the vehicle was bought via an ongoing hire purchase agreement, as long as the monthly payments are reasonable.

However, if your car is worth over £6,000, your creditors may ask why you couldn’t sell the vehicle and replace it with a less expensive model. The word ‘may’ is crucial here, as creditors could deem your circumstances to justify you keeping even a car as high as £10,000 in value.

Given that an IVA can potentially last up to five years and even slightly beyond, creditors could be willing to accept you keeping a relatively high-value car if they believe that it is sufficiently high in quality to last the entire term of the IVA without needing to be replaced. 

Theoretically, a less expensive vehicle could also be lesser in quality, and so more easily break before the IVA expires. Hence, if you own such a car, the IVA proposal would need to include a clause allowing you to replace or repair the vehicle during the IVA’s period of validity.

You might also be able to argue that public transport would not meet your commuting needs; for example, if you work variable or unsocial hours.

Will An IVA Stop Bailiffs?

You could understandably be fraught with stress and worry if a bailiff has sent you a letter demanding payment. However, even if it isn’t practically possible for you to make the whole payment right now, taking out an IVA can make it easier for you to meet this financial obligation. 

A bailiff will only appear at your door after a court has authorised them to do so. There are various types of debts — including income tax, council tax, VAT and CCJs — where failure to pay on time could lead a bailiff to act. However, an IVA can assist you in paying a range of unsecured debts. 

If you have obtained an IVA and are complying with its conditions, you will be legally protected from bailiffs visiting your home or any further court action being taken against you in relation to your debts. 

If a bailiff does still contact you, you can present them with a copy of your IVA. Before you do this, though, you should ask the bailiff to prove that they are indeed a bailiff.

Every registered bailiff is required to hold proof of who they are — and, for this reason, should have no concerns about showing you their enforcement agent certificate, ID card or badge on request.

Can An IVA Take My PIP?

Are you looking to enter an individual voluntary arrangement (IVA) but are also currently in receipt of a personal independence payment (PIP)? If so, you may fear that an IVA could take away the latter — and potentially, with it, your ability to continue living comfortably.

You might have started receiving PIP due to having a long-term health condition or a disability that adds to your living costs. Therefore, if much of your income comes from state benefits like PIP, you could understandably fret that creditors might want to remove all of your PIP. 

When considering PIP, there is usually an expectation that the full amount of the PIP will be utilised in ongoing costs of care or mobility. During the bankruptcy process, your PIP would not be factored into an assessment for an income payment order (IPO). Similarly, when your eligibility for a DRO is being judged, your PIP would not count as a measure of your disposable income. In an IVA, there would usually be the expectation that the PIP will be discounted for the purpose of your disposable income. If you believe you do not utilise all of your PIP, and that part of it is free to use to pay for your creditors, then you should make this clear during the above processes.

All licensed insolvency practitioners must adhere to the Insolvency Code of Ethics and give objective advice about appropriate debt solutions for your needs. If your payment in an IVA would be based on you using part of your PIP, then this may indicate it is not an appropriate solution. So, the practitioner is likely to advocate bankruptcy or a DRO (debt relief order) above an IVA for helping you to clear your debt, as you would not be required to make a payment in those two solutions.

Therefore, a DRO or bankruptcy would, compared to an IVA, enable you to free yourself of debt more quickly and cheaply. You are still free to offer an IVA to your creditors if you wish to pay something back to your creditors, however, you should ensure all appropriate costs relating to your condition have been accounted for when you are working with the Insolvency Practitioner to determine the affordable payment.

Nonetheless, if other circumstances mean bankruptcy or a DRO are not appropriate, for example, you own a property, or have an asset of significant value, and therefore the IVA is a more appropriate option for you, rest assured that your PIP is likely to be discounted fully.

Is An IVA Worth It?

If you are in debt to multiple creditors, you could be considering asking an insolvency practitioner to arrange an individual voluntary arrangement (IVA). This legally binding agreement between you and your creditors will let you reduce your debt within a reasonable time frame, by making monthly payments for a period of five to six years.

An IVA is appealing for various reasons. One is that the IVA is based on an affordable payment, based on your circumstances. The Insolvency Practitioner will work with you to determine what you are able to offer to your creditors. Once approved, the Insolvency Practitioner will review your contributions a minimum of every 12 months to ensure the payments remain affordable. The IVA will run over a pre-arranged period of time — and, after this, provided you have complied with all the terms, any lingering debts included in it will be written off.

However, if your debts add up to less than £6,000 overall, there could be simpler means of clearing them, like arranging affordable payments with creditors directly. That way, you can avoid incurring fees that an IVA would require you to pay. Alternatively, bankruptcy or a Debt Relief Order would also allow you to deal with your debts within a shorter time frame.

Generally, an IVA can make a lot of sense if you have accrued over £6,000 of debts from various sources. Although an IVA cannot help you with certain debts, such as secured loans, or child maintenance loans and court fines, the IVA could help you reduce your payments to unsecured debts and consequently help make the secured debts, or child maintenance payments more affordable.  

Can You Remove An IVA From A Credit Report?

It’s perfectly possible to take out an IVA without any friends, relatives or colleagues ever finding out about it. That’s because an IVA (individual voluntary arrangement) is struck between a debtor and creditors, and few other people would even need to know that the IVA exists. The IVA will be registered on the Insolvency Register, and will therefore be visible through the Insolvency Register website, however, this would require someone to make a specific search on the Insolvency Register.

However, from the date your IVA begins, details of it will be on your credit report. Usually, they will stay there for a total of about six years. Typically, an IVA lasts for five or six years, and therefore, the IVA will usually remain on the credit report after the closure of the IVA. 

Unfortunately, even if you fully pay off your IVA within six years, it will remain on the credit reference file until those six years are up. While the credit report will indicate that the IVA is complete instead of in progress, the IVA will ultimately still be there. 

This is likely to have implications for the quality of credit – if any – you can source from lenders, as they will be able to carry out a credit check on you. 

One reassuring point is that, as your credit report will eventually omit to mention the IVA, arranging one can remain, on the whole, beneficial for your long-term financial health. The IVA can provide you with a solid basis for eventually building up a positive credit rating.

How Much Does An IVA Cost?

Since you will already be in debt if you are considering an individual voluntary arrangement (IVA), you could understandably fret about how much it might cost. Using an IVA to clear debt does incur a number of costs — including the repayments as well as fees attached to this debt solution.

In an IVA, there are two fees that an Insolvency Practitioner will look to charge. There is a Nominee fee and a Supervisor fee. The Nominee fee covers all of the work required for the approval of the arrangement, and the Supervisor fee covers the work required for the management of the IVA once it is approved. The Nominee fee is usually a fixed amount, and the Supervisors fee will usually be a percentage of the money paid into the IVA, although this can vary. Separate to these fees, an Insolvency Practitioner will incur a number of expenses, such as specific insurance and a registration fee for the IVA, and these will also be paid from the IVA.

In most cases, the Insolvency Practitioner will draw these fees from the money you pay into the IVA on a monthly basis, and you will not be required to pay the fees separately. In some cases, especially if your circumstances are more complex, an Insolvency Practitioner may require a payment upfront as a contribution towards the Nominee fee, however, you will be advised of this from the beginning. Here at NDH Financial, we do not require any upfront payments,

When the IVA is approved, the creditors will agree on the basis the fees can be drawn, and will usually request a change to the amount that can be taken as fees. This can sometimes reduce the amount of fees that can be drawn, or may require the Insolvency Practitioner to pay a set amount from the monthly payment to creditors. 

Therefore, when you make your monthly payment, the Insolvency Practitioner will draw all or part of it as payment towards the above fees. Any remaining funds are then paid to creditors through a dividend. 

As the fees are taken from the funds that you pay into the IVA, you do not have to pay any fees separately. In the event your circumstances improve, then you may be required to pay more into the arrangement. This could happen as a result of you receiving a windfall or additional income. If this happens, then you may be in a position where you need to pay off your debts in full, plus the fees of the IVA, before the IVA can be completed.

As mentioned, although some IPs charge upfront costs, this is not our policy here at NDH Financial. Instead, we will just take any applicable fees from your monthly payments that are made into the IVA.

Can I Get A Credit Card On A Debt Management Plan?

If you are mulling over the prospect of taking out a debt management plan, you may wonder how this could impact your ability to secure a credit card. 

Debt management plans enable many people to free themselves from the shackles of debt by arranging for repayments to be made flexibly or partially. 

Other debt solutions on offer include individual voluntary arrangements (IVAs) — where, as pre-arranged with creditors to which you owe unsecured debt, you help yourself to clear it through making a monthly payment you can actually afford. 

Unlike an IVA, a debt management plan would not be mentioned in a specific section on your credit report. All the same, it will still indicate that you have defaulted on the debt and are paying less than what was contractually agreed. 

The markers of the default and the lower payments will stay on this credit report for six years from either the default date or the final payment. After that time, any evidence of the debt management plan on your credit report will be taken off it. 

While it is technically possible to get a credit card while subject to a debt management plan, this move would be inadvisable. Using a credit card could hamper your ability to keep up with repayments under the plan, and so potentially worsen your credit score in the longer term.

If you find yourself using a credit card whilsts on a debt management plan, you should consider whether the payment you are making is sustainable, and that you are not relying on credit to make the debt management plan payments. The purpose of the debt management plan is to repay your creditors at an affordable rate, until the debts are paid off. If you are incurring further debts whilst you are making these payments, then other options may be more appropriate.

How Does An IVA Affect You?

Committing to an individual voluntary arrangement (IVA) can have both short- and long-term implications for how you live your life. 

An IVA can be preferable to going bankrupt — especially when you own your home, as creditors will usually agree for you to keep this in an IVA, whereas in bankruptcy, a Trustee would look to realise your interest. An IVA may also be a more cost effective way to repay your creditors, rather than bankruptcy, as the fees in an IVA are lower, especially where you need legal protection from your creditors to give you time to sell the property.

If you rent your home, having an IVA will not affect this, provided you pay your monthly rent on time. Still, as the IVA will land you a place on the Individual Insolvency Register (IIR), you could struggle in attempts to relocate to a different rental property. 

When an insolvency practitioner (IP) is investigating how much you would be able to pay via an IVA, you may need to introduce any savings into the IVA for the benefit of your creditors, although minimal savings for budgeting or approved pension schemes would usually be excluded. 

An IVA can potentially impact on the practical elements of your life. For example, as you are no longer able to access credit, you may find it difficult to pay for items you may traditionally paid for on credit, for example holidays or Christmas. Although creditors would allow you reasonable allowances to budget for gifts, creditors will usually not agree to a specific allowance for holidays, or taking a payment break to cover the cost of the holiday. If you are paying for the holiday through additional income, you should bear in mind that 50% of the additional income you have earned will need to be paid into the IVA.

Debt Management Plan vs IVA: Which Is Better?

If you are looking for an appropriate way to repay your debts, you could be considering either an IVA (individual voluntary arrangement) or a DMP (debt management plan). Deciding which type of debt solution you should go for will depend on you knowing precisely how IVAs differ from DMPs.

Either option would let you agree with creditors to make monthly payments you can actually afford. However, as an IVA counts as insolvency, it is formal and legally binding — meaning that creditors would be legally prevented from contacting you for the entire term of the IVA. 

Though usually willing to accept payments via DMPs, creditors would be legally permitted to get in touch with the debtor while the DMP is still running, as it is an informal agreement. While an IVA usually lasts five to six years, a DMP will remain until the debts are paid in full upto a maximum time period of ten years. 

In an IVA, the Insolvency Practitioner will take their fees from the money you pay into the IVA. A debt management plan will be managed by a FCA registered organisation, who will usually draw a fee from the monthly payment, although there are some charitable and not for profit organisations that will provide one with no charges.

Ultimately, when you are considering an IVA, you should contact a licensed insolvency practitioner such as the team at NDH Financial. We will factor in all of your personal needs and circumstances to determine if an IVA is an appropriate solution for you.

How To Apply For An IVA

If you are struggling with the burden of excessive debt, you could take advantage of the personal debt solution referred to as an individual voluntary arrangement (IVA). 

By striking this legally binding agreement with your creditors, you can arrange to pay in monthly but affordable instalments. However, you would first need to go through an application process consisting of numerous distinct steps. 

Initially, you must ask your licensed insolvency practitioner (IP) to set up an IVA in your name. Unlike some other IPs, we at NDH Financial won’t demand any upfront fee for establishing an IVA or insist on you paying any outstanding fees if the IVA fails. 

The IP will help you to devise a payment plan based on your projected ability to pay over the IVA’s entire term, which is likely to reach five or six years. So, the IP will consider:

• Your household income
• Your household expenditure 
• Your assets 
• Your level of debt 

The IP will then draw up a proposal to present to your creditors. If 75% or more of them agree to the plan at a meeting of creditors, it will enter force. You will then make the agreed payments, and at the end, once you have complied with the terms of the IVA, any remaining, qualifying, unsecured debt will be written off.. 

If you remain unsure whether to seek an IVA, keep in mind that  IVA consultants here at NDH Financial offer a no-obligation consultation service for helping you to determine if an IVA is right for you.

What Happens If I Stop Paying My IVA?

If you’re struggling to make your payments, the first thing you should do is speak to your insolvency practitioner, because they may be able to offer reduced payments or payment breaks for a period of time. Sometimes, your insolvency practitioner will need to contact your creditors to agree to the reduction, or the payment break, and will be subject to creditor approval.

When considering your request for a reduction in payments, or a payment break, you will need to provide up to date information on your household income and expenditure. The insolvency practitioner will then review the information to determine the affordability of your payments.

If you find yourself in a situation where you’re unable to make any payment to your IVA, and creditors do not agree to a payment break, then the IVA will fail. When the IVA fails, you will no longer have the legal protection of the IVA, and creditors will be free to add any interest and charges for the period the IVA was in place. In addition, your credit report will be updated to confirm the IVA has failed.

In some cases, if you do not make the required payments into the IVA, creditors may request that the insolvency practitioner presents a petition for your bankruptcy. This does not happen often, however, it is a possibility.

What Are the Pros And Cons Of An IVA?

One of the biggest benefits of an IVA is that it offers legal protection once it is approved. In some cases, you can make an application to court to start the legal protection sooner, however, this will only be appropriate in certain circumstances, and would require a fee to be paid to court.

Creditors are not allowed to contact you or take legal action against you as long as you stick to your agreements, guaranteeing both protection from bailiffs and general legal protection. You will also be given sufficient allowances to pay your secured debts.

If you’re worried about publicity, worry no more. 

Times are changing. 

An IVA is a private matter between you and your creditors alone. Unlike with big bankruptcies, you won’t see yourself in the local paper, although the IVA will be registered on the Insolvency Register . Again, unlike with bankruptcy for people, your home and certain assets will be protected during an IVA process.

However, you might want to consider some of the less appealing aspects of having an IVA - the first of which is that your credit file and subsequent credit rating will be negatively affected for six or more years after the end of your IVA. 

While a poor credit score isn’t the end of the world, we do recognise that this can have a big impact on being approved for loans in the future. So, it’s important to think about the balance of risk and the balance of performance potential that comes with an IVA.

What Is A Debt Relief Order (DRO)?

A debt relief order is a way to manage your debts if you owe £30,000 or less, don’t own your home, don’t have other assets over £2,000 and can’t afford to pay your creditors more than £75 per month.

You don't have to make payments towards the debts included in your DRO. A DRO will last for 12 months, however, it may be revoked if your circumstances improve and you exceed the above criteria. When the DRO ends, all of the qualifying debts included in it will be written off.

Debts that can go into a DRO are called qualifying debts. During the DRO period, collectors can’t ask you for payments – and, if they do, you don’t have to pay them. DRO-qualifying debts include:

• Credit cards, overdrafts and loans
• Arrears with rent, utility bills, telephone bills, council tax and income tax 
• Benefits overpayments 
• Shortfalls on hire purchase or conditional sale agreements
• ‘Buy now, pay later’ agreements 
• Bills for services like vets or solicitors 
• Debts you owe to friends and family
• Business debts 

However, not all debts are covered by a DRO. You might still need to pay: 

• Magistrates court fines and confiscation orders relating to criminal activity
• Child support and maintenance 
• Student loans 
• Social fund loans 
• Compensation for death and injury

It’s important to note that, if you have any of these debts, they don’t count towards the £30,000 limit.

What Happens At The End Of An IVA?

Once you have made your final payment, as long as you have complied with the other obligations, such as providing your documentation for your annual review, you should receive a certificate of completion in the form of a final report and letter. 

The certificate of completion should be issued within six months of your final payment, provided you have complied with all of your obligations, although you will typically receive this up to 12 weeks after the payment has been made.

If you haven’t received your certificate after 12 weeks, just get in touch to confirm what the delay might be.

Once you’ve received the certificate of completion, you’ll be able to start rebuilding your credit score.

Your IVA will stay on your credit history for six years from when the debt solution was created – unless your IVA lasts for over six years, in which case, it will stay on your credit file until you make your final payment.

Once you know what your credit score is, you can start rebuilding your rating. This basically lets lenders know how risky it is to lend you money and how likely you are to make repayments on time. 

There are numerous ways you can boost your credit rating, such as paying the likes of rent, utility bills and phone bills on time, as well as using and paying off a credit card.

Will An IVA Impact My Joint Mortgage?

If you have an IVA, you have to declare it on your mortgage application. If asked directly whether you have ever had an IVA, you do have to declare that you have. However, if you are asked whether you are currently in an IVA, you can answer no as long as you have finished your payment plan. 

The questions that a broker or lender asks are intended to find out whether:

• You have had or currently have any debts
• If you have used a debt management company in the past
• If you have an outstanding loan of any kind

The broker or lender will definitely check your credit file, using property rental data and loan documents. Lenders will carry out a credit check on you, too.

However, your credit report is only one of the many components of the lender criteria that mortgage lenders use to determine the success of your application. Some lenders may consider you on the grounds that you have been through financial instability but kept up with your loan repayments and made amends and are now more financially responsible. 

When you are living with someone, all aspects of your life seem to collide, especially when it comes to bills and living expenses. There isn’t a clear-cut answer as to whether your IVA will affect your partner and vice versa – it is all down to individual circumstances.