What is an IVA?
An IVA is an insolvency solution to help people who cannot afford to pay their debts.
Although this can be a good solution, particularly where an individual has a large property, or other significant assets to protect, it can be a long and expensive route out of debt and is often mis-sold.
The world of insolvency is complicated and much more loosely regulated than consumer credit, or other debt solutions. This means that there is a very real risk that individuals will be sold into a solution which does not help them, and which they don’t really understand.
If you’re struggling with unaffordable debt, make sure you know your options before committing to any debt or insolvency solution. Make sure you have explored all of your routes to get out of debt including debt management, bankruptcy, debt relief orders and challenging debt with our help.
How does an IVA work?
The initials IVA stand for individual voluntary arrangement. This is an agreement between an individual and the companies that they owe money to where they agree to write off any outstanding debt once the individual has made payments for an agreed length of time.
One of the major issues with an IVA is that neither the amount you will pay, or the time that the arrangement will last can be fixed.
How an IVA works is that the creditors agree to give up the individuals claims in debt that they have against you, in exchange for payments from the IVA (sometimes called dividends). If the IVA is successfully completed, then any outstanding unsecured debt is written off.
If you do not stick to the terms of the agreement the arrangement will fail and you have to continue paying the original debts.
The payments that you make to the IVA are set according to your disposable income each month – this is what money you have left over each month after paying all of your bills and expenses such as food, petrol and childcare. Your contributions will be reviewed on an annual basis, but you will also be required to pay a large part of any exceptional income (such as bonuses, overtime or even inheritance) into the IVA. This is often at least half of that income.
An IVA will have a severe impact on many other aspects of your life including your credit report, your ability to borrow more money, and your existing credit accounts such as bank accounts and phone contracts. An IVA may also restrict your ability to rent property, take a mortgage or buy a car on finance.
Your credit report will be affected for at least 6 years and you may also be prevented from working in certain industries such as finance and defence. Make sure you also check whether an IVA will have an impact on your immigration status or any benefits that you receive.
When you enter an IVA, your details will be entered onto the Insolvency Register, which is publicly available record of your insolvency and can be searched by anyone including friends, family and future employers.
Can I add debt to my IVA?
An important thing to consider is that only those creditors who were included in the original IVA proposal are bound by it. It does not matter whether they agreed to, or voted in favour of, the arrangement, they will still have to write off any remaining debt if you complete the IVA.
It is very important that you are careful to include all of your creditors in the IVA, otherwise you may find that you need to pay them separately, as well as making your IVA contribution each month.
In some rare instances your creditors will agree to be added into the IVA, but for most debt this is not the case. An IVA will not cover any debt which you have taken out after the IVA began.
Most unsecured debts can be included in an IVA, such as credit cards, overdrafts, store cards, debt from a lease or hire purchase agreement (where you no longer have the car/goods), utility bills such as electricity and water, council tax, benefit overpayments, phone bills and even unpaid personal taxes.
Debts which cannot be included in an IVA include debt from outside of the UK, business debt, court or statutory fines, and any debt which was taken out fraudulently.
Companies can also enter into voluntary arrangements (sometimes called company voluntary arrangements or CVAs), but company debt cannot be included in an IVA.
How to apply for an IVA
You should contact a registered Insolvency Practitioner, or debt advisor, if you have decided that an IVA is the right option for you. That individual should also speak to you about your reasons for setting up an IVA and whether an IVA is the right option for you.
You should always search for sanctions against your Insolvency Practitioner on the Insolvency Service’s website, before deciding to appoint them to apply for your IVA. If you have any concerns or questions, make sure you take independent advice.
How long it takes to set up an IVA depends on how quickly you are able to get the information together about your debts. As a general rule of thumb, it should not take more than a couple of weeks to apply for an IVA. The first payment date can be set to your payday, or whatever date suits you.
When the IVA is agreed, an individual Insolvency Practitioner is appointed as supervisor of the arrangement.
Often the supervisor will work with the same company who helped you put together the IVA proposal for the creditors, they may also be the same individual. but they will be acting in a very different role and will be called the nominee before the arrangement begins.
This can be difficult to get your head around, the easiest way to think about it is that the insolvency practitioner was working for you before the IVA began, but as soon as it is live, they are working for your creditors only.
The supervisor is responsible for the administration and smooth running of the arrangement. They are there to protect your creditors interests and make sure that you pay what you are required to by the arrangement.
The supervisor will often work with a firm who mange much of this administration on their behalf, but they will be individually responsible for supervising the arrangement. The supervisor can change during the time the IVA is running – you do not need to approve this change.
Is an IVA right for me?
While you are in an IVA, your creditors are not allowed to take any enforcement action against you, like taking you to court or sending bailiffs to your address. They should also stop contacting you directly and chasing you to make payments.
The first thing to keep in mind is that an IVA is an insolvency process and only suitable when you have no real prospect of paying the money that you. In other words, when you are insolvent.
If you do not own your property and have low monthly income, you may find that a debt relief order, or even bankruptcy is a better way to write off your debt. We may also be able to help you with our unique legal challenge.
An IVA is best for people who own their own homes and have some equity which they want to protect which may otherwise be taken off them in bankruptcy.
Many people start an IVA without knowing what will happen to their property. In this instance should be given have two options, these are as follows:
- You can re-mortgage your home to release some of the equity. You will then need to pay an agreed portion of this equity into the IVA, typically around 85% of the equity in your name.
- If your creditors agree, you can exclude your equity from the IVA proposal, and instead agree to contribute to the arrangement for an extra year.
In practice, the first option is not often viable as it is not possible to get a mortgage while you have an IVA. This means that an IVA can become an expensive and very long solution. You can read more about the cost of an IVA and how long an IVA lasts elsewhere on our site.
Where to go for help
The number of new IVAs approved has been steadily increasing in recent years. This is likely because of the increase in the number of ‘introducer firms’ who are paid high bonuses for introducing people to IVA firms (typically £700 to £1,000 per introduction).
The problem with this approach is that many people are sold into an IVA when it is not the right option for them.
If you feel under any pressure at all to agree to an IVA, or if you have questions which are not being answered, then stop and get some independent advice. No reputable company will have any issue with you seeking advice.
Galahad & Co. do not offer IVAs or any insolvency solution, but we are more than happy to speak to you about your circumstances and share our knowledge on the options available to you. Please get in touch with us today if you’re considering an IVA, or are in any solution which doesn’t feel right for you.