We know what it feels like to struggle with unmanageable debts. Fortunately, this agreement freezes interest, stops legal action, and creates a repayment plan over a set period. As the agreement is legally-binding, all parties need to adhere to the terms of the IVA – that includes creditors.
This also means you won’t be directly chased by creditors once the IVA is active – as communications will go directly through your representative – an insolvency practitioner. This typically puts an end to your lenders demanding repayment as well as visits from bailiffs.
If your debt situation looks unmanageable, then an IVA could be one of the best ways to help secure your financial future.
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 debt value at the meeting 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 debts while granting protection from your creditors. These organisations won’t also directly chase you and – instead – will work through your insolvency practitioner. This means you shouldn’t receive any demands for payment.
The qualifying terms for an IVA can vary between insolvency practitioners but, generally, you’ll be accepted if you 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 you’re eligible.
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.
* As of 02/02/21 15,377 of our customers were in an active IVA. ** Average unsecured debt anticipated to be written off for IVAs approved between 1 January 2020 and 31 December 2020 is £10,568, based upon successful completion. *** Based on 363 independent verified Feefo reviews as of 10th March 2021, for the full details of these please click here.
Taking out an IVA means you could write off a lot of what you owe. Although we cannot give a strict figure on what you’ll actually be able to write off, we have created an IVA calculator which should provide a good estimation.
Across our customers the average amount written off will be around £10,500 upon successful completion of the IVA.
Your debt amount:
Total debt payable: £2,042
Debt write-off: £10,568
* This calculator approximates the amount of unsecured debt you could write off. It is based an average of £10,568 unsecured debt that we anticipate will be written off for IVAs approved between 1 January 2020 and 31 December 2020, upon successful completion.
There is no standard set number which is written off during an IVA as each case is different 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.
To apply for an IVA, and to speak with one of our expert advisors, get in touch through with us today. With no obligation on your part, our specialist team can discuss your circumstances and help determine if an IVA is the best option for you.See if I qualify
Setting up an IVA
How will an IVA affect my life?
Can an IVA fail?
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 paperwork. 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% by the debt value of the voting 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.
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.
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 and may include:
The best advice you can get here 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, it may be possible to add these on afterwards. As soon as you remember these, inform your insolvency practitioner.
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 insolvency 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.
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 towards your debts in 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.
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 debt who choose to vote at the meeting 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 you wish to accept the proposed modifications.
Worrying about whether an IVA can fail is a common concern amongst 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 the equivalent of 3 months payments, 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 can lead to a 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 be unable to make 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.
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 should the breach not be remedied. In this situation, should the IVA fail, your creditors may initiate legal proceedings to recover the unpaid amounts you owe, which may include a petition for your Bankruptcy.
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 likely 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 take possession of 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 approximately 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 up to 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.
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.See if I qualify