Is an IVA right for you?
An IVA is an insolvency agreement which is set up between an individual and his or her creditors. It is a legally binding arrangement and you’ll need an insolvency practitioner to set one up.
How do IVAs work?
Having debts can seem overwhelming, but an Individual Voluntary Arrangement (IVA) could offer one way to help you get back in control of your finances. An IVA usually lasts for five or six years, during which time you make monthly payments to your creditors from all your available income. You may also agree to pay a lump sum too. Once you have made all the payments, any remaining debts you have are written off.
What is the difference between bankruptcy and an IVA?
Bankruptcy is another form of insolvency, which involves all your assets, including your car, home and other valuables, being sold in order to pay off your creditors.
You can apply for bankruptcy yourself, or your creditors can force you into it. Any company which you owe £750 or more to can apply for you to be declared bankrupt, but bankruptcy is usually only a suitable option for those with unsecured debts of £50,000 or more.
Bankruptcy usually lasts for one year, although it will, however, be noted on your credit file for six years, meaning that banks and other financial organisations to which you apply for accounts and services will be able to see it, and any credit applications will usually be refused.
In most cases, if you can qualify for an IVA, it’s a preferable solution. In order to do this you must owe £15,000 or more to at least three different creditors, and at least 75% of your creditors (measured by what you owe, not by how many creditors) must agree to the IVA.
Unlike bankruptcy which lasts a year, an IVA will usually last for five or six years, during which time you will pay an agreed amount every month to your creditors. Any debts you haven’t yet cleared during this time will be wiped out at the end of the IVA.
How to apply for an IVA
You need to use an insolvency practitioner to set up an IVA – you cannot arrange one on your own. The insolvency practitioner will charge you for doing this and will put together an IVA proposal outlining to your lenders who you think your IVA should work. Once the IVA is approved, it is up to your insolvency practitioner to review your IVA and ensure it us working well.
What are your options?
IVAs and bankruptcy offer two ways to try and regain control of your finances if your’re struggling with serious debts, but there are other solutions you may want to consider.
It’s worth seeking advice from one of the free debt advice charities for example, such as StepChange (formerly the Consumer Credit Counselling Service) or Money Advice Trust. They may be able to negotiate with creditors on your behalf, and so that you can devise an affordable repayment plan.