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What is an IVA and how can it help clear your debts?

Published on:March 20, 2019Author:alex

Problem debt currently affects around 8.3 million people in the UK.

If you’re one of the 17% of people across the UK struggling to repay the money you owe to your creditors each month, it can be difficult to know where to turn.

However, many people are unaware that there is a formal debt solution which can help them reduce their monthly payments and potentially write off more than half their total debt.

On average, our customers have had more than 60% of their debt written off with an IVA.

More than 5,500 people in the UK are approved for an IVA every month.

What is an IVA?

Individual Voluntary Arrangements (IVAs) were introduced by the Government in the 1986 Insolvency Act as an alternative to bankruptcy.

An IVA is a legally binding agreement between you and your creditors in which you agree to pay back as much of your debt as you can afford over a certain period (normally 5 to 6 years).

Often this means a person with debts of £6,000 or more can propose an arrangement which allows them to repay a proportion of their debt in affordable monthly instalments. If you live in Scotland the equivalent solution is a Trust Deed.

Bankruptcy generally involves realising your share of equity in your property and possible selling other assets including your house, car if it is worth more than £1,000 and other valuables. Your personal household possessions and tools of trade are exempt from bankruptcy.  The sums realised go to clear your creditors’ debts after settling the costs of bankruptcy which can be significant.

Even though you generally are discharged from bankruptcy after 12 months, if you have surplus income you pay contributions for 3 years.

An IVA generally offers a more preferable solution, as it gives you more control of your assets than bankruptcy.

IVA payments will usually last for five or six years, compared to 3 years in bankruptcy if you have a surplus. Payments into your IVA are reviewed by your Nominee (the person nominated to propose your arrangement) and then are agreed by creditors.  As long as your contribution shows you are making a fair and affordable monthly contribution, it is likely that creditors will agree your proposals.

Why should I choose an IVA?

1. It’s affordable

The main appeal of an IVA is that you only have to pay an agreed percentage of your debt back and if the payments into the IVA are not enough to pay your debts back in full, the rest will be written off at the end, if the IVA is completed successfully.

2. Free of debt in set time

You will be free of debt in a set time. In an agreed number of years – usually five or six years – you’ll be debt free and you’ll no longer have to pay your creditors for any of the debts included in the IVA.

3. It’s affordable

Your monthly IVA repayments will depend on your specific income and outgoings, meaning it will be an amount you can afford each month.

4. Interest and charges frozen

Any interest and charges on your unsecured debts will also be frozen so you can make one affordable payment each month.

5. Your creditors will stop calling

Your IVA will be approved if 75% in value of those creditors that do vote, vote in favour of your proposals.  Even creditors who do not vote will be bound by the terms of your arrangement if it is approved by creditors.

Once approved the terms of the IVA cover all creditors who cannot take any further legal action against you.

6. Keep your home

You won’t have to sell your home.

In some cases, you may be expected to remortgage and free up some equity for your creditors – but our advisors can explain this in more detail, if it is necessary.

7. Reduce stress

Almost a third of those in the UK affected by problem debt are stressed, anxious or depressed because of it.

Talking about debt and dealing with your finances can have a positive impact on mental health.

If you’ve been feeling down and anxious about your debts for a while, that worry may have taken a real toll on your mental health, on your life and on your relationships.

An IVA can, in some cases, make a real positive difference to your life as you’ll know the debts are under control and being taken care of.

To get an IVA, you should have some spare income each month to pay your creditors, usually at least £100.

Our debt calculator can help you work out how your “affordable” monthly payment compares with the amount creditors want, as well as the amount of disposable income you currently have.

What debts can be included in an IVA?

Most debts can be included in an IVA, although there are some exceptions.

Generally, IVA’s are used for the following unsecured debts:

  • bank and building society loans
  • overdrafts
  • personal loans
  • credit cards
  • payday loans
  • store cards
  • catalogues
  • charge cards

You may also be able to include priority debts such as:

  • debts with a CCJ
  • Income tax or HMRC arrears
  • Council tax arrears
  • Utility bills
  • Debts to family and friends

Debts that cannot be included in an IVA include:

  • Matrimonial debt – monies owed to an ex-husband or wife which a court has decided should be paid
  • Student debt
  • Court fines or fines for traffic violations

An IVA may be an appropriate option for you if you can’t keep up with the contractual payments you agreed to when you took the credit out.

What happens at the end of an IVA?

Provided the terms of your IVA contract have been complied with on completion of the IVA the balance of any unpaid debts is written off and your creditors will have no further claim against you.

There are some creditors that tend to vote against IVA proposals including some of the guarantor loan creditors. Your Nominee will make sure your creditors are likely to approve your proposals before recommending an IVA.

Failure to keep up with IVA payments may result in your creditors filing for your bankruptcy, so you should ensure you are fully aware of the risks involved before entering into an IVA or any type of debt solution. An IVA will affect your credit rating as details will be included in a searchable register.

You can read more about the advantages and disadvantages of IVA’s here.

Is an IVA right for me?

Our expert debt advice can help you to determine if an IVA would be the most suitable solution for you and your circumstances.

For full debt advice and whether an IVA would be your best option, you can speak to one of our advisors today.

If an IVA is the best solution for you, The Debt Advisor can help guide you and support you through the process.

If an IVA is not the best solution for you, you may qualify for another debt solution such as a Debt Management Plan (DMP), a Debt Relief Order (DRO) or Bankruptcy.

If you are a resident in Scotland, there are a number of Scottish Debt Solutions available to you.

The Debt Advisor Ltd is authorised and regulated by The Financial Conduct Authority, number 659920.

This means we are able to offer debt advice and deliver both formal and informal solutions. IVA’s do need to be carefully considered and you must take independent debt advice. Your credit rating will be affected for up to 6 years after the IVA is approved. We hope that the information and debt advice on this site including Frequently Asked Questions, will help inform you.

To speak to one of our advisors about IVAs and other debt solutions, you can request a callback or call us directly on 0800 085 1825.

There are sources of free debt advice and services. You can find out more by contacting the Money Advice Service on 0800 138 7777 or by visiting their website.