How Does an IVA Work?

An IVA is a legally binding, formal agreement which can also write off substantial debts. Here we discuss in detail and explain how it can help you.

An Individual Voluntary Arrangement (IVA) is a legally binding agreement between you and your creditors to repay what you can over a reasonable period. This is an extremely popular form of insolvency and is used by thousands of people every year.

Read on to discover how an IVA works and how it affects your life.

How the IVA process works

The IVA process always starts with debt. If finances are becoming difficult to control, multiple creditors are chasing you for money, and you don’t realistically see a way to pay what you owe, an IVA is one way to regain control.

The good news is this situation is very common and, by dealing with it, you’re well on your way to getting back in the black.

Fortunately, starting the process is relatively straightforward – you’re in the right place already. Just click the button below and we’ll go through the rest of the IVA process with you:

Is an IVA right for me?

If you’re wondering whether an IVA is right for you, you should fit these circumstances:

  • You want to write off your debts.
  • You want someone else to deal with creditors on your behalf.
  • You don’t realistically see a way to repay your debts.
  • You are happy for a debt solution to last at least five years.
  • You’re happy to make monthly repayments.

Setting up an IVA – How do you get started?

As an IVA is legally binding, it must be set up by a qualified professional. This individual, called an insolvency practitioner, primarily works on your behalf to handle all the complicated details.

During the set-up process, you and this professional will work together to work out how much you owe and how long the IVA should last. The insolvency practitioner will also take down details such as any assets you might have, your income, and which lenders you owe money to.

During this time, it may be possible to apply for an interim order. This agreement is something which prevents your creditors from taking additional legal action while the IVA is being considered.

Once that’s done, the practitioner should have a really good idea as to whether an IVA would be the best solution for you. If not, he or she might recommend an alternative – such as bankruptcy. Assuming the agreement has a good chance of success though, the IVA process continues.

Setting up an IVA – Speaking to your creditors

After the initial set-up, the insolvency practitioner will get in touch with your creditors. For the IVA to become active, the creditors who hold at least 75% of your total debts must agree to it. Providing the IVA gives them a better return than bankruptcy, they should agree to the terms. It’s normally quite rare for lenders to refuse but – if they do – it’s not the end of the world. You’ll usually be allowed to revise your proposal and try again.

Setting up an IVA – The day-to-day

If the IVA is approved, the details of the agreement are distributed to your creditors. Interest rates and charges are frozen, your lenders shouldn’t directly contact you, and you’ll be well on your way to dealing with your debts.

Before this though, your insolvency practitioner should have discussed payments with you. You ought to know exactly what you’ll be repaying and when for the next few years. This individual is now tasked with making sure everyone sticks to the terms of the IVA – this includes yourself and creditors.

Monthly payments should always be made for the entirety of the scheme. Once this period expires though, any remaining debt is written off.

What an IVA means for your credit rating

It’s worth noting that an IVA will have a detrimental effect on your credit rating. However, so does having multiple debts to creditors which you’re struggling to repay. Once the IVA has been completed, and your debts are a thing of the past, you should slowly start seeing improvements in your credit score.

Do IVAs work?

The point of an IVA is to help you get back on top of your debts and, in this respect, it works. Providing you keep up with the repayments, your accounts with creditors will be closed when the IVA comes to an end. Any funds which haven’t been repaid during this time will be written off.

Interim orders explained

Earlier we mentioned interim orders. In the context of an IVA, this works to provide respite for those being relentlessly chased by creditors and bailiffs. Given an IVA takes several weeks to set up, lenders may still try to take payments or continue with legal action.

Although many creditors understand the IVA process and will grant a break while the agreement is being approved, some may still push for their money. In this case, an interim order is a legal document which prevents enforcement measures without the express permission of a court.

Once the interim order is approved, it comes into effect immediately.

To find out if you could benefit from an interim order, speak with your insolvency practitioner. They will be able to advise.

IVA Insolvency practitioners explained

An insolvency practitioner is a licenced professional authorised to act on behalf of the person requesting the IVA. They are qualified individuals and are strictly monitored by regulation bodies, such as the ICAEW.

By choosing an IVA through us, you can be assured that you’re in safe hands.

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