Quick Guide to Individual Voluntary Arrangements (IVAs)
As the UK experiences record levels of debt, more and more people are turning to individual voluntary agreements (IVAs) as a solution to their problems. However, what are IVAs, how do they work and who are they right for? The moneysupermarket.com IVA guide will explain.
What is an IVA?
An IVA in the UK is a formal agreement between you and the county court to pay off debts over a determined period - usually three-five years. Typical payments usually range from £250-£300.
How do you get an IVA?
An IVA can only be set up by an Insolvency Practitioner (IP) who is authorised by a solicitor or an accountant. It is often necessary to pay a fee in advance (which can be as high as £4,000) or it could be deducted over the term. The IP gathers a proposal to present to creditors highlighting how the debt will be repaid over the agreed period, which the creditors then vote to accept or dismiss. If the creditors who agree are owed 75% or more of the debt, then the remaining 25% are bound by their decision.
What's the difference between an IVA and bankruptcy?
In bankruptcy all assets are held by the trustee, including your savings and insurance policies - and they are shared between creditors on a pro rata basis. With an IVA your IP can negotiate which assets are included in the agreement, which could mean the exclusion of your home, while with bankruptcy you are subject to numerous restrictions, such as not being able to borrow more than £500 without permission, until you are discharged.
Could you still be made bankrupt with an IVA?
Once your IVA proposal is approved your IP can apply to the county court for an interim order preventing creditors from petitioning for your bankruptcy. If you can't maintain payments your IP can ask creditors to accept a lower offer. If they don't accept this your IP can petition for your bankruptcy or pass the debts on to creditors who can either pursue you for each debt or petition for bankruptcy.
How do you know if an IVA is right for you?
IVAs have benefits but they are not right for everyone - but they are a potentially good alternative to bankruptcy, especially if your job would be at risk by going bankrupt. You will need a safe job and a fairly high income that won't change during the term. Also bear in mind that your home can be repossessed if the IVA fails and your IP or creditors petition for bankruptcy. It might be necessary to remortgage or release equity, and your credit rating will be affected.
Other things to watch for
Some IPs put together proposals for payments that clients can't afford - remember that the IP gets their fees regardless of if the IVA fails or not. Seek impartial advice on IVAs before entering an agreement and ensure the IP you contact is regulated. Always check how high the fees are and if you can pay them monthly or in a lump sum.
For further advice…
For impartial advice contact a not-for-profit organisation such as the National Debtline, the Citizen's Advice Bureau or the Consumer Credit Counselling Service.
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