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According to the most recent statistics available from the Insolvency Service, throughout 2019 almost 78,000 people took out an IVA (individual voluntary arrangement) – nearly a ten per cent increase compared with 2018. These agreements made up around 63% of all insolvencies last year – making it the preferred choice over options such as bankruptcy and debt relief orders.
An IVA is a formal agreement between you and your creditors. This arrangement – which is legally binding – is designed to help you deal with your debts through affordable payments.
Popular for those looking to control unmanageable sums, it freezes interest and creates a repayment plan over a set period. As the agreement is legally-binding, all parties need to agree to the terms of the IVA – that includes creditors.
This also means that direct contact with these groups should cease while the IVA is active. Finally, when the arrangement comes to an end, any unrepaid debt is written off.
It’s reasons such as this that an IVA continues to be the most-used form of insolvency.
For the IVA to work, it has to have legal authority and must therefore be set up by a qualified insolvency practitioner. This individual works alongside you to create an initial proposal. This, in turn, is sent to your creditors for approval.
This proposal typically calculates how much you can afford to pay over a certain period and, while the terms of an IVA can be very flexible, the agreement usually lasts between 60 and 72 months.
Once the proposal has been received, the creditors who hold at least 75% of your total debt value must agree to the terms via voting. Although an IVA can be refused there, most creditors will usually agree to the terms providing they are reasonable.
Once agreed, this arrangement gives you time to repay your dates while granting protection from your creditors. These organisations won’t also directly contact you and – instead – will work through your insolvency practitioner. This means you shouldn’t receive any demands for payment or other notices.
An IVA is a legally binding debt solution which can ultimately leave you in better control of your finances. By making regular monthly payments to your creditors, you could resolve the debts you have while eventually writing off a significant portion.
Although there are three reasons below why an IVA should be considered, we’ve also created a guide on determining if this solution is right for you.
Ultimately, an IVA can be an attractive option if you’re struggling to repay your creditors but still meeting other financial obligations.
The process for completing an IVA application has around five different stages and usually takes around six weeks to complete. However, this can vary depending on how long it takes to submit all the required evidence. Assuming all goes well, each of the stages have been detailed below:
The first thing you’ll have to do is make sure that an IVA is the best solution. To determine this, you should seek the services of a qualified insolvency practitioner to discuss your circumstances. They will go over such aspects as your assets, monthly income, and your total debts.
Once you have settled on an IVA, a Statement of Affairs will be drawn up. The information provided here will be based on what you’ve told your advisor in the step above.
Now that you have your statement and you're happy with the proposed monthly payment amounts, this information is put forward to your creditors. Within the document will be a proposed date for the Meeting of Creditors, normally two weeks after the application goes in.
This is where the creditors vote on whether they will reject or accept the proposal. 75% of the creditors must vote in favour of your IVA for it to go through. If you achieve this percentage, all of your unsecured lenders have to legally agree to the terms of the IVA whether they voted for it or not.
Once the proposal has been approved, all the parties involved are informed and a supervisor will be appointed to your case. This supervisor ensures that you are making your monthly payments.
Continuing to make your payments on time for the set term of the agreement (usually around five years) will mean that at the end you will be legally discharged from your debts and the IVA will be completed.
The qualifying terms for an IVA can vary between insolvency practitioners but, generally, you’ll be accepted if adhere to the following points:
Although the above list is not exhaustive and additional qualifying criteria may also apply, it should give a good indicator as to whether or not you’re eligible.
An IVA can be a great solution for those who want to resolve their debts and still have a certain amount of disposable income. However, before you take out an IVA, it’s important to know how it could affect your life.
In the majority of cases, an IVA shouldn’t affect your job. Also, debt is your business and – generally – your employer shouldn’t even need to know about your IVA. However, there are some job markets which have strict rules about debt and employers have to be notified if their staff enter insolvency.
For example, if you work in the banking or mortgage industries, it’s important to check your contract to see if your employer needs to know about your IVA. If it does, you may be unable to practice in those fields.
An IVA stays on your credit record for up to six years. Consequently, you will have to deal with the long-term effects of a bad credit score. Once your debts have been resolved though, your credit rating should begin to improve and more lending options should be open to you.
Entering into an IVA may mean you need to change your bank account. In some situations, if you owe money to the organisation you bank with, those institutions might still try to recover money from your account. However, this isn’t certain and an insolvency practitioner will be able to best advise on how you should bank with an IVA.
Having an IVA doesn’t put your home in jeopardy. Depending on what equity you have in the property, you may have to re-mortgage around six months before the IVA ends. This is to release equity which can then be paid back into the IVA as a lump sum. This process is assessed to check for affordability before it is approved by your insolvency practitioner.
Multiple debts can be included as part of an IVA, such as:
As well as the above, you can also place council tax, energy bills, and tax credit onto the IVA.
There is also no limit on the amount of debt included. To find out more, speak with one of our advisors – they’ll be able to advise whether all your expenses can be included on an IVA.
Although there are multiple debts which can be covered as part of an IVA, there are several exceptions. The debts which don’t fall under the IVA criteria will still have to be paid off by you and may include:
The best advice you can get about this situation will be from your insolvency practitioner. They will be able to help you budget to pay off your IVA as well as any non-inclusive debts on time.
If you have any joint debts with a partner, you should include these on your IVA. Once your agreement term has ended, your partner may still be liable to pay off the remaining amount of debt.
This is something you should definitely cover with your insolvency advisor, as it may affect whether you proceed with taking out an IVA.
If you take out an IVA and then forget about some debts, you can add these on afterwards. As soon as you remember these, inform your insolvency practitioner.
Taking out an IVA means you could write off a large portion of any unsecured debt you currently have. However, the amount you can actually write off completely depends on your circumstances.
Generally though, we manage around £13,500. We’ve actually created a calculator which can estimate how much debt your IVA can write off.
For example, if you owe £50,000, we might be able to write off around £35,000 of it.
There is no standard set number which is written off during an IVA as each case is different and unique to a person’s situation. Monthly payments towards the IVA are based on the amount of disposable income you receive each month, so the figure paid out changes for each person.
If you have a larger amount of income at your disposal, you’ll be able to pay more back. The more money you can pay, the smaller the amount of debt there will be to write off. If you also receive additional funds, such as an inheritance, this may affect your IVA repayments and could result in you writing off less.
Similar to other debt solutions, there are pros and cons to an IVA. However, there are benefits to these arrangements which make them the preferred choice of many.
For example, as the policy is legally-binding, it acts as effective protection from your creditors. As all parties have to agree to the terms, creditors cannot harass or chase you once the IVA is in effect.
As well as freezing the interest on your debts, an IVA is only active over the specified period. This means, assuming the agreement lasts five years, that repayments only take place during this time. Once those five years expire, creditors usually accept that any outstanding funds will be written off.
Although an IVA is a form of insolvency, it’s generally a much better alternative than some options out there. For example, this agreement can protect you against bankruptcy. In this case, your home or assets may be repossessed and sold to repay your creditors.
If you’ve been with the same bank all your life, switching to another may feel like the last thing you want to do in the middle of an IVA. Fortunately, this agreement doesn’t automatically mean you can’t keep your bank account – although in some circumstances you may be better off if you don’t.
If any of your debt is linked to your bank, the firm could have the right to withdraw funds to pay off that amount. For example, if you are unable to pay off an M&S credit card and have a current account with HSBC, the bank may withdraw funds to pay off your credit card debt as HSBC operates the M&S credit card scheme.
However, it may be enough for your bank to switch your account to a basic account. Most bank accounts come with an agreed or informal overdraft, which is a form of credit. When you enter into an IVA, you should not get credit without approval from your insolvency practitioner – switching to a basic account removes the overdraft facility, ensuring you cannot unintentionally borrow money and breach your IVA.
Ultimately, if you decide to enter into an IVA to deal with your debt, your insolvency practitioner will advise you whether you should keep your bank account or not. As experts, they will ensure you make the right decision about who you bank with during your IVA.
Although you can get limited credit with an IVA, the main purpose of this agreement is to resolve your debts. Therefore, additional borrowing is typically not encouraged.
An IVA, as a form of insolvency, will affect your credit rating. However, this doesn’t mean it’s impossible to get credit. People with IVAs are usually eligible to apply for up to £500 in credit during the agreement. Whether lenders will approve of this is dependant on them and your overall credit score.
When agreeing to an IVA, you will be assigned an insolvency practitioner who will help with the legal ins-and-outs of the process. If you plan to borrow more than £500, you will need to get your practitioner’s permission in writing. Doing this can help you secure a higher amount of credit, but it’s not standard procedure.
Consequently, it’s best to assume that £500 of borrowing will be the maximum amount allowed during your IVA.
If you claim benefits or top up your income frequently with working tax credits, housing benefit, and child benefits, it’s still possible to apply for an IVA. This is because you need to make regular payments towards your debts and the funds provided from this could mean you qualify.
An IVA helps you deal with your debts by contributing a monthly amount which your creditors deem acceptable. As an IVA generally lasts for around five years, sustainable regular income is important to avoid missing payments.
Although benefits could fulfil this criteria, taking funds from this income stream may affect other parts of your lifestyle. As benefits generally provide you with enough money to live off, an IVA might take too much of this away – leaving you in a dire financial state until your situation changes. Consequently, you might wish to speak to one of our advisors regarding alternative debt solutions - such as a debt relief order.
It’s unlikely that you will be accepted for a mortgage during an IVA. Traditionally, any credit or loan which is more than £500 must go through your insolvency practitioner first for written approval.
If you have equity in your property you may have to re-mortgage your home around six months before the IVA arrangement comes to an end. This is to help pay off the lump sum of the IVA.
Re-mortgaging isn’t the same as taking out a brand-new mortgage when under this agreement. However, it will still be just as difficult to find someone who is willing to lend you the money or re-mortgage your property whilst you’re still under an IVA.
An IVA has the potential to affect your partner. For example, if you’re living together, your creditors will expect this person to contribute to such matters as household expenses. Consequently, they may feel you’ll have more funds to deal with the IVA payments.
However, your partner will not be contributing to the IVA itself. As individual voluntary arrangements, it will be up to you to ensure payments are made. Your partner will never be expected to put money towards the agreement.
An IVA can affect your partner's credit history though, but only if you and your partner have a joint-funds account. This financial link can only be broken through a Notice of Disassociation. However, this notice is only valid if you and your partner are not involved in any form of economic activity, such as mortgage acquisition, together.
If you and your partner have long-term objectives to resolve debts, an IVA may be a suitable option.
Although there’s nothing in an IVA agreement which says you should tell your partner about it, realistically, you should do. These arrangements are long-term solutions to clearing your debt so hiding it will be practically impossible.
If you’ve already set up a DMP (debt management plan), you may be wondering if it’s possible to switch to an IVA. Perhaps you want more predictability for your long-term debt management, or maybe your circumstances have changed and increased stability means you can afford more.
The good news is that you can switch from a DMP to an IVA. The process can take several weeks and will require you to go through the formal procedures for setting up an IVA. This includes the appointment of your insolvency practitioner and their subsequent work with your creditors to secure a long-term IVA lasting around five or six years.
Whether you should switch from a debt management plan to an IVA is entirely up to you. It’s worth noting that, with a DMP, you still have some flexibility in your monthly repayments. You can make changes if necessary depending on your circumstances — but your creditors may still contact you. Furthermore, extra windfalls or bonuses won’t be absorbed automatically by the DMP.
An IVA is a more structured and formal approach but switching is a big decision. Consequently, if this is something you’re considering, get in touch with us to discuss your circumstances.
The acceptance of an IVA proposal depends on the information provided to the insolvency practitioner (IP). If the information is truthful, it is upon the IP to accept or reject this. Fortunately, most IVA proposals are accepted.
One reason for rejection is the number of creditors and their opinion on the proposal. First, you must have more than one creditor to qualify for an IVA. Once there are two or more creditors, those owed 75 per cent or more of the total debt must agree to the proposal. It does not matter if the remaining creditors object to this as it will still be accepted.
You must also have a regular source of income which will enable regular IVA payments. Although employment is not strictly required, if the creditors are assured that instalments will be paid regularly, the proposal should be accepted.
Creditors also expect to get more money from the IVA than they would if you were to be declared bankrupt. If there is no reason to believe the IVA will lead to a better recovery than bankruptcy, creditors usually opt for bankruptcy proceedings.
It’s often rare that an IVA is refused outright – as a reasonable agreement contains benefits for all parties – but creditors can request amendments. Known as modifications, these could relate to aspects such as the amounts repaid or the length of the arrangement.
Under those circumstances, it is your decision as to whether to reject the IVA.
Worrying about whether an IVA can fail is a common concern about applicants. Yet, it’s important to remember that this situation is a rare one. Furthermore, even if the terms of the IVA are breached, you will usually be given the opportunity to put those right.
For example, should you miss an agreed payment, you will usually be served with a ‘breach notice’. This document outlines where the terms of the IVA have been violated and what should be done to rectify the situation. Alternatively, you may be able to negotiate a change in the terms of the IVA so payments can continue to be made.
However, if the breach cannot be rectified, the IVA will fail. This means creditors could pursue legal action against you. Your insolvency practitioner might also recommend that you be made bankrupt.
Fortunately, if you keep to the terms specified in the IVA agreement, this situation should never take place.
Failure to make payments – or making late payments – to an IVA both constitute an actionable breach. This usually carries serious consequences so it’s important to ensure payments are made as per the agreement with your insolvency practitioner.
Occasionally, you might default on a payment due to unavoidable circumstances. In this situation, you should ideally communicate this to your supervisor in advance. This will allow them to identify the best solution.
For example, if you can show reasonable cause for a delay or missed payment, your supervisor and creditors are likely to accept payment at a later date even if a small fee is charged.
However, missing three payments in a row without the supervisor’s permission sets the grounds for the IVA being terminated. The supervisor is required to issue you with a notice of breach and follow through with the termination procedures. In this situation, you will likely be declared bankrupt and the creditors may initiate legal proceedings to recover the unpaid amounts you owe.
If you lose your job – or another situation occurs affecting your source of income – and it’s now impossible to continue with your IVA instalments, this is unlikely to result in immediate termination. You can apply to your supervisor to give you a six-month break and, during this time, you can find another source of income and resume the payments.
This lost time will be added onto the duration of the contract. If you are still unable to continue payments after the six-month break, the IVA may be terminated and creditors will decide if they want to initiate bankruptcy proceedings.
A bailiff is typically called in to collect outstanding debts – such as court fines, unpaid council tax bills, or utility arrears.
If a creditor has exhausted every other option of reclaiming funds from outstanding debts, they can apply to the courts for permission to use bailiffs. If approved, these individuals usually have the power to visit a person’s home and possess goods to resolve the debt.
Once an IVA is approved, all court actions including warrants for bailiffs will be stopped. Therefore, in theory, an IVA can stop bailiffs from visiting your home. However, this is dependent on a few factors.
For example, you can include multiple debts in an IVA but court fines are not one of them. Consequently, if a bailiff is tasked to recover court fines, the IVA cannot stop them in this case.
An IVA application doesn’t get approved overnight. The whole process can take around four to six weeks to go through. As a result, if a bailiff does visit you in this time, ask them to put a hold on your account and inform them that an IVA is in the pipeline.
If you’re having problems paying your IVA, you should consult your insolvency practitioner who might be able to amend your payment plan. Although you can request to cancel an IVA, this should be done with caution as this route could result in bankruptcy.
Once you notify your insolvency practitioner and creditors regarding cancellation, they will decide whether to agree depending on the circumstances. Some possible reasons may include:
As cancelling an IVA is a big decision, you should seek professional advice from your insolvency practitioner before proceeding.
The end of your IVA signals a new and exciting chapter in your financial status. One great thing about this is the creditors included on the agreement can no longer target you, even if you did not repay the money owed in full. Any remaining debts are written off and you now have the space you need to rebuild your finances and your credit score.
After paying the last instalment, it takes a maximum of eight weeks for us to issue you with a completion certificate. It is important to receive and keep this as it legally closes the IVA and discharges you from all unsecured debt and interest accrued during this period. Copies of the certificate are also supplied to your creditors as a means of giving them a formal notice demonstrating the arrangement has officially ended. The certificate, therefore, stops them from engaging with you about any issues regarding the debt, whether paid in full or not.
It takes three months from the date of successful completion for your name to be removed from the insolvency register. This time allows any issues that may arise to be solved before you are completely free from your debt obligations. However, it will take six years from the IVA’s start date to clear your name with credit reference bureaus.
To apply for an IVA, and to speak with one of our expert advisors, get in touch through the contact form or call 0161 956 2689 today. With no obligation on your part, our specialist team can discuss your circumstances and recommend the best course of action for you. Although an IVA might be the best option, they may also think other debt solutions will be more suitable.
Debt write off applies to unsecured debts and on completion of an IVA. A debt write off amount of between 20% and 80% is realistic, however the debt write off amount for each customer differs depending upon their individual financial circumstances and is subject to the approval of their creditors.
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