What are IVAs?
An IVA is an Individual Voluntary Arrangement. This is a legally binding agreement between your creditors and yourself. An IVA allows you to repay your debts in affordable payments over a period of time. Because of the legal nature of the agreement, and the fact it is legislative debt relief scheme, through the Insolvency Act 1986, both you and your creditors are required to follow it – it is essentially a contract between the two of you.
IVAs are generally a more flexible debt solution, as opposed to bankruptcy, offering a range of payment options depending on what you can afford to pay and based on your circumstances. For example, if you own an asset, you can choose to include it or exclude it from the IVA, although this will be subject to creditor approval.
Once your IVA has been set up by the insolvency practitioner, they will charge fees for the arrangement. These are often based on a fixed fee, or as a percentage of the funds paid into the arrangement, and are subject to creditor approval. In the majority of cases, the fees will be taken from the funds you pay into the arrangement. There are several ways to go about getting an IVA. Before committing to a debt solution, even if it appears to be an attractive option, have a look at the effect it could have on your credit score and your ability to get credit in the future, or any other potential impact on you, for example your contract of employment.
The repayment plan is worked out with your insolvency practitioner before you agree to the IVA. The insolvency practitioner will work with you to calculate an affordable payment, based on your circumstances, and these will be paid over 5 years, although depending on your circumstances, it may be 6 years. Your insolvency practitioner will then present the paperwork to your creditors, and if approved, you will then make payments to the insolvency practitioner, who will distribute it to your creditors, after they have taken the appropriate fees.
Is Getting an IVA a Good Idea?
There are pros and cons to an IVA. One of the biggest benefits is that as soon as the IVA is approved you’re offered an immediate level of protection. Once the IVA is approved at the meeting of creditors, contact from your creditors is forbidden, and creditors are unable to take legal action against you as long as you stick to your agreements, guaranteeing both protection from bailiffs and general legal protection. Any interest or charges will be frozen once the IVA is approved. You will also be allowed to continue with any secured payments to your creditors, and if there are any arrears, the IVA will include a provision for you to repay them.
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 morning paper or be the highlight of gossip among business people and bankruptcy creditors after getting an IVA. Your name will be recorded on the Insolvency Register. Again, unlike with bankruptcy, your home and certain assets will be protected during an IVA process, although this is subject to creditor approval.
However, you might also want to consider some of the not-so-rosy bits of having an IVA.
What are the Disadvantages of an IVA?
Unfortunately, there are disadvantages of an IVA as well as advantages. Let’s go more in-depth about some of the cons of an IVA.
The first disadvantage 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 recognise that this can have a big impact on being approved for loans and many other factors, so it’s important to take this into account with an IVA.
If your situation changes, you can’t simply cancel your IVA because it’s a legal arrangement. Instead, you need to request the termination of the IVA. Be aware that making a defaulting on the terms of the IVA or requesting to end your IVA may result in bankruptcy, as creditors will have the option to request the insolvency practitioner to present a bankruptcy petition. On a more positive note, if you are struggling with payments, your insolvency practitioner is there to help you, can offer a number of solutions. Payment holidays may be allowed, or your contributions can be reduced, so don’t lose hope just yet. If you’re struggling and not sure what your next steps should be, contact NDH Financial today for a free IVA consultation.
There are also restrictions made to your banking when you set up an IVA. You will be limited to a basic bank account to ensure that you have no access to unsecured debt - overdrafts, a credit card or cheque books - whilst you’re in the midst of your IVA repayments. This is primarily to ensure that you’re using your disposable income to pay all you reasonably can to your unsecured creditors without getting into further debt.
Personally taking out an IVA could have an impact on your partner, too. This is especially true if your partner is jointly liable for any of the debts, as the creditors will ask them to make the payments towards the debt, and may be registered as a default against their credit report, regardless of your individual circumstances.
In some cases an IVA can have an impact on employment. Although an IVA is utilised by people employed in the Armed Forces, or the Civil Service, as bankruptcy is an immediate breach of their contract of employment, it can still be a breach of other employment contract, or memberships and licences. Therefore, it is recommended you check any professional membership, licence or contract of employment, before you enter into an IVA, to make sure it does not cause you a problem later on.
If during the IVA you become entitled to any asset, for example a lump sum through inheritance, or winning the lottery, you will be expected to introduce the funds into the arrangement. You will only be required to introduce sufficient funds to pay your creditors in full, plus the costs of the IVA. In some cases, depending on the wording of your specific IVA, you may need to pay an additional amount, which is referred to as “statutory interest”, although most modern IVA agreements will exclude this.
Homeowners may be required to release equity in month 54, however, this will depend on your circumstances at the beginning of the IVA. In some cases, you will just need to pay an extra 12 months, either from the beginning, or if you are unable to release the equity.
Is an IVA My Best Option?
NDH Financial specialise in assisting people with unmanageable debts. They’re experts in supporting individuals on their journey to becoming debt-free and promise to always treat you with the utmost level of respect and dignity.
We can help by providing a free IVA consultation to find out if an IVA is an appropriate option for you based on your current circumstances taking into consideration the IVA's advantages and disadvantages. Our expert team takes care of the rest of the details, so you don’t have to waste your time worrying – we’re certain you’ve already done enough of that!
Once you’ve returned the necessary paperwork, you can sit back, relax and, provided your creditors accept your proposals, enjoy your first month’s lower repayment with protection against further action from your creditors.
Every case is different so we can’t tell you if an IVA is an appropriate option without going through the details with you, but we can guarantee that we will communicate with you and support you every step of the way if you choose to begin your IVA journey with us.
IVAs are an approprite option for many because the debt is usually cleared within five years, and the payments can be scheduled in a way that suits your situation. It’s best to keep in mind that they are very strict plans and you run the risk of bankruptcy if you fail to make your payments. You can also use the Government’s impartial MoneyHelper service to help you determine if an IVA is your best option.
What are you waiting for? Apply now for your free IVA consultation.