IVA Debt – Individual Voluntary Arrangements

IVA

Let’s talk about Individual Voluntary Arrangements and what it means to have them in place. Nothing is more stressful than mounting debt and month-end looming over your head. Debt can seem like a self-perpetuating thing; once you’re in it, it’s hard to get out. And when the bills start racking up, it can seem like you’re swimming against the tide – or battling a tidal wave! However, paying off debts isn’t something that has to overwhelm your daily life. With the right debt management solutions determined by your assets, income and the total amount you owe, you can pay off your debt steadily and affordably, and at Reform Debt Solutions, we are ready to help you.

An Individual Voluntary Arrangement (IVA) is a way to manage your debt. Read on to learn more about what an IVA is, how it works, what it costs, and if it’s the right solution to get you out of the red and into the black.

What is an IVA? IVA Meaning

If you’re not familiar with the various IVA debt management solutions out there, you might have no clue about the finer intricacies of an IVA. One thing you need to know is that it’s a simple process and can save you a lot of headache and heartache in your mission to get out of debt – or at least in control of your debt, and at ReformDebtSolutions.co.uk we are proud to offer the different options that can save you from that; IVA Debt solutions, as well as Debt ConsolidationDebt Management Plans (DMP), and help with Debt Relief Orders.

An IVA is a form of insolvency. Insolvency is defined as follows: “A state of being unable to pay debts.”

The Individual Voluntary Arrangement itself is a legally binding document between you and your creditors, stating that you will pay back your debt over a specified period. The court is involved in authorising the document, and both parties must adhere to the terms.  The most significant perk of getting IVA debt help in place is that the repayment terms are flexible and designed to suit your needs and financial situation, which means no more crippling monthly payments looming over your head!

IVA Debt – How Does an IVA Work?

To qualify for an IVA, you must have a minimum of three creditors with considerable debt – anything above £15,000. Then you need to get in touch with an insolvency practitioner (IP) because individuals do not have the authority or know-how to draft IVAs. Don’t worry if you don’t know any IPs; we will connect you with some of the best IVA insolvency practitioners in the UK.

When you have an IP on your side, the real work can begin. The agreement document will be expertly drafted to ensure the terms are suitable to you and your creditors. This is important because IVAs are only approved if 75% of your creditors agree to the terms. If the creditors agree, you pay monthly instalments to the insolvency practitioner, who then forwards the agreed-on amounts to each of your creditors.  Your insolvency practitioner deals with your creditors throughout the entire process. They act as the middle man, keeping the process professional, ensuring the terms are strictly adhered to, and alleviating possible stress and worry.

When applying for an IVA, it’s important who your chosen IP is. They’re responsible for drawing up the terms of your proposed IVA. With the right IVA in place, you can convert stress-inducing credit cards, utility bills, store accounts, and payday loan expenses into easily affordable monthly payments.

Apply for IVA | Is an IVA Right for You?

Thousands of people make use of IVA loans because they drive down debt and offer affordable debt management convenience. But does this mean that an IVA is a suitable route to take for you?

First and foremost, consider what your debt is doing to you and consider seeking out professional advice on IVA. If it’s imposing mental, physical, and emotional stress on you and those around you, an IVA debt solution is right for you. IVAs are designed for people desperately seeking the light at the end of the proverbial debt tunnel.  They are ideal for people who have ill-affordable unsecured debt, can’t afford to pay for what they want and need, and are crippled under rising interest rates.  The only solution to thousands of pounds worth of debt is professional intervention; Individual Voluntary Agreement.

The great thing about IVA debt management is that a realistic overview of your finances is considered. The insolvency practitioner works with you to determine how much you can genuinely afford to pay each month, and then terms are drawn up around that information.  This is also a reason why an insolvency practitioner forms an important part of the process. They do all the negotiating and mediating, which reduces the stress and possibility of agreeing to a deal that’s not ideal for your financial situation. The best IVA will be put together by professional insolvency practitioners who know how the industry works. The proposed IVA is more likely to be approved by the court if you’re using one.

IVA Calculator – This is What IVA Debt Management Looks Like

IVAs can be used to pay down massive debt amounts. The repayment period is usually between 5 and 6 years, but it differs from one IVA agreement to the next.  You might wonder if taking out a loan is a better option. To illustrate why we don’t think it is, we’ve included a comparison table below for you to consider.

Consideration IVA Loan
Will the debt be paid off by a certain date? Yes Yes
Will I lose my house if I can’t pay? No No
Is the interest fixed (frozen)? Yes No
Will the creditor agree to accept less than what I owe? Yes No
Is a licensed insolvency practitioner involved in the process? Yes No
Can creditors be persuaded to agree to alternative payment arrangements? Yes No
Will I be protected from unsecured creditors? Yes No
Is any residual debt written off after the completion time? Yes No
Is the process safe, secure, and private? Yes Yes

While five to six years is the norm with IVAs, you may be requested to make lengthier repayments due to the proposed IVA loan not covering enough of the debit within the proposed five to six-year period.

Case Study Example of  IVA UK

Let’s consider a case study to bring some clarity to how IVA debt solutions work.

Peter, a local grocery store supervisor, has somehow found his way into £50,000 credit card, store account, and unsecured loan debt.  When he worked as the top sales manager at his previous job, he made a lot more money, but he has had to take on a new job with a lower income attached due to personal circumstances.  There’s no denying it, Peter is in financial trouble, and he wants to get IVA debt management to get his debt repayments under control.

He spends some time adding his monthly expenses and comparing it with his income and determines that he can only afford to pay around  £250 per month on his IVA. He was hoping for an IVA of five years but finds out through his insolvency practitioner that the proposed repayments aren’t particularly attractive to his creditors.

Of course, Peter doesn’t want to face bankruptcy and so opts for an extended IVA agreement where instead of paying for five years, he pays additional instalments for one extra year. This is suitable for both Peter and his creditors, who feel that the amount offered is probably the most they can recoup in the entire process.  As a result, Peter is able to write off around £32,000 in debt.

IVA Help – What is Covered with an IVA?

Sometimes IVAs aren’t ideal for your particular situation because of the type of debt you’re in at the time. IVAs are only applicable to certain debts.

Covered

Overdrafts Utilities (gas, electric, water)
Payday loans Family and friend debt
Personal and catalogue loans Hire purchase debt
National insurance Income tax
Credit cards & store cards Joint debts
Council tax Tax credits
Unsecured debts General bills

Not Covered

Court fines Student loans
Mortgage loans TV licenses
Social fund loans Hire purchase agreements
Child support/maintenance Debt from Fraud
Secured loans Certain vehicle finance

Is an IVA Worth It? –  Costs of an IVA

With IVA debt help, you can expect the costs to vary according to the amount owed, how much work is involved in liaising with creditors, and of course, the fees and charges of the insolvency practitioner, lawyer, or accountant you use.  IVAs can be expensive. There are no official guidelines for insolvency practitioner fees in the UK, but in most instances, they come to around £5,000. Considering the sheer amount of debt that an IVA can write off, most individuals find this affordable.

Some practitioners will expect their fees to be paid in full before they provide advice on IVA, draw up the agreement, and start mediating, but others include their fees in the IVA agreement so that you can pay them off in easily affordable monthly instalments along with your other creditors.

The IVA fees you are quoted by the insolvency practitioners on our panel cover quite a lot of services. In fact, the practitioner plays three important roles in the process:

  1. Advisor (to you),
  2. Nominee (drawing up the proposal, approaching the court, and liaising with creditors)
  3. Supervisor (ensuring both parties stick to the agreement for the full term).

The expected fees are to cover all of these services.

IVA Advice – Pros and Cons

Like everything in life, IVA debt management comes with advantages and disadvantages. While IVA can help you out of a tricky financial situation and ease your life of excess stress, there are some downsides to the process. For instance, you won’t be able to take out loans of over £500 while your IVA is in place, and if you try to open store accounts or apply for credit, there will be a notice of your IVA debt on your credit profile.

To get a better idea of the pros and cons of IVAs, view the easy-reference table below.

Pros Cons
Affordable monthly instalments Not private
Legal and binding Credit rating affected for six years
Fixed payments Must adhere to a strict budget
No loss of property Homeowners may need to release equity
Debt-free within a set time Defaulting on IVA can result in bankruptcy
Frozen contractual fees and charges No access to loans over  £500 for the duration
Creditors will stop nagging you Not everyone is eligible
Debt not paid off is written off at the end
Only requires approval of 75% of creditors
Available to individuals, couples, and businesses

The last con on the list probably got your attention. Not everyone is eligible for individual voluntary arrangements. You might be wondering if you qualify.  Several risks need to be considered, and you certainly shouldn’t be applying for IVA if you’re sure you will present these risks to the insolvency practitioner.

  • Nonpayment on monthly instalments
  • Breach of contract

And of course, the risks to you are:

  • Loss
  • Bankruptcy

Qualifying Criteria Summary

  • You’re in debt of £15,000 or more
  • You have a minimum of three creditors
  • You need assistance getting creditors on board with a repayment plan

FAQs

What’s the Main Difference Between Individual Voluntary Agreement and Debt Management?

Both of these services are designed to help overindebted individuals pay down their debt in the most affordable way possible. The difference comes in where IVA is less flexible than debt management. IVA debt management introduces a strict contract of fixed payments each month, and there is no leeway to change these payments or make adjustments. Debt management, on the other hand, allows for a bit of flexibility.

If you make adjustments to your payments of no more than 15% on a debt management plan, no permission is required from the creditor. There is no such leniency on those with IVA help in place. Both IVA and debt management have a negative impact on your credit score, but it appears that IVA has a more significant impact.   If you have no plans to apply for credit for a big purchase during your IVA term or shortly after, this should not be a major concern.

What Happens After my Last IVA Payment?

You might have calculated all your monthly payments and found that you paid off a lot less over the last five to six years than you initially owed the creditor. At this point, the leftover debt will be written off, and you will receive confirmation from your insolvency practitioner that your last payment has been made.

Your IVA loan will appear on your credit profile for six years from the date your agreement is set in place. After six years, your IVA notice will be removed from your credit profile, leaving you with a low credit score. That’s okay because there are several ways you can improve your credit score.  The first step is to check your credit score. Unfortunately, settling your IVA debt earlier will not have the note on your credit profile removed earlier, but the agreement will be marked as “complete.” Debts being covered by your IVA may also be recorded individually on your credit history.

Something positive to focus on is that you will be officially debt-free. And because you have spent so many years living on a budget, you might have learned good budgeting skills along the way.

Is it Possible to Improve My Credit Score After Receiving IVA Help?

You may be wondering now that your IVA agreement is paid off what you can do to get a decent credit score again. Lenders and other creditors usually pay attention to your most recent credit history, so as your IVA ages, your score should start improving. When the IVA is marked as “complete,” that’s already a step in the right direction.

After six years, the notice of your IVA loan will be removed from your credit report. Below are a few tips on improving your credit score in the UK.

Verify your residential address

You can do this by registering on the electoral roll with your current address.  It’s okay if you share accommodation with someone else or your parents, you can still register your address.

Always pay in full and on time

If you have any accounts that you’re still paying, make an effort to pay them off in full each month. This shows lender’s that you can manage your debt effectively and will reflect positively on your credit profile.

Actively work on your credit history

After being under IVA debt management for six years, there won’t be much information on your credit history, making it difficult for lenders and other creditors to assess you. You can use small loans of up to  £500 to build up your credit history. Of course, you will need to handle these loan repayments impeccably.

How Will an Individual Voluntary Agreement Affect My Life?

Once you set an IVA in place, your financial life will look a little different. You can expect it to affect your life in the following ways.

How you spend money

You will have to live according to a strict budget for five to six years, and in most instances, additional income is required to go towards debts.

Your work may be affected

If you’re an accountant, lawyer, or similar, your employer may be notified of your IVA agreement, which could negatively impact your work situation.

How you borrow money

For the duration of your IVA loan, you will only be able to borrow a maximum of £500. If you require more cash, your insolvency practitioner will need to grant special approval.  At the same time, the notice of your IVA on your credit rating might make lenders wary of approving your loan requests.

IVA debt can sometimes affect your possessions

If you’re still paying off an expensive dining room table but expect a creditor to agree to an IVA, you may find that they request the items back. This can also happen with a vehicle unless you need it to get to and from work. It’s a great idea to sell valuable possessions to pay down your debt quicker before seeking out IVA assistance.

Will My IVA be Private and Confidential?

While your data is always private and confidential, your IVA isn’t. The first people to hear about your Individual Voluntary Agreement will be your creditors. In addition to banks, if you own money to your utility provider, council, and mobile phone provider, they too will receive a notification of your IVA.  If you are a sole proprietor or self-employed, your trade creditors and HMRC will be notified. Your IVA details will also appear on the Individual Insolvency Register, but you don’t have to worry about friends and family seeing it as this Register is only accessed by professionals working in the credit and insolvency fields.

What if I Can’t Make My IVA Payments Anymore?

A lot can happen in five to six years. You may start out thinking that you can afford to pay £300 per month towards your IVA debt, and then two years down the line, everything’s changed. Then what?  If your financial situation has changed or if you have suffered a further loss, it’s important to inform your insolvency practitioner immediately.  You will then be presented with options to consider, and a course of action can be followed depending on your stated reasons for not being able to pay.

In some instances, temporary reductions on the monthly fee are possible. If there is absolutely no way of coming to a suitable repayment term, there is the option of claiming bankruptcy. The best thing you can do is be upfront and transparent about your situation.

Can I Proceed with IVA and My Creditors By Myself?

You might be wondering if there’s a way around the fees that come with professional IVA services by handling the process yourself – you must get professional assistance and advice on IVA agreements prior to applying for the process. The bad news is that you cannot process an individual voluntary agreement personally. This is a legal debt solution process, and as such, you need a professional practitioner assisting you.

An insolvency practitioner is both qualified and licensed to provide financial services and, more importantly, advise someone who is insolvent. Of course, the insolvency practitioner does a lot more than just draw up the agreement. They act as the following during the IVA process:

Advisor

Before IVA help and during the process, your chosen insolvency practitioner is your advisor. They will ensure that you know your options and the likelihood of getting an IVA at the monthly rate you can afford.

Nominee

Once it is determined that you qualify for IVA, the insolvency practitioner will act on your behalf while contacting each of your creditors. The practitioner will ensure that all of your documents are gathered and that the correct supporting information is collected to make an accurate and informed IVA proposal possible. Your information is copied to creditors, and a meeting is set up to decide if the IVA is acceptable. If it is, it can become a legally binding contract.

Supervisor

After the IVA agreement has been agreed on, the insolvency practitioner assumes the role of IVA Supervisor, thus restructuring your relationship.  Until now, the insolvency expert has been your representative. Now they become intermediaries acting in the best interests of both the creditor and you. The supervisor’s role is to ensure that both parties adhere strictly to the agreed-upon terms and to ensure the necessary action is taken if either party doesn’t.

As you can tell, these are processes and functions that you, as the person applying for the IVA, simply cannot do yourself.

What Will I Pay Each Month if I Get an IVA?

What you pay towards your IVA debt management each month will depend on your unique financial situation. This is why each individual voluntary agreement is different. The figure is usually calculated by adding up all of your monthly expenses, priority debts, and unsecured debts and then deducting them from your income. What’s left is considered the suitable IVA fee. This doesn’t leave much leeway in your budget but is the most effective way to pay down debt as soon as possible without overextending your budget.

How Do I Know if IVA is Right for Me?

Deciding to go into some sort of IVA debt management program is a tough choice. You may find yourself mulling over the options and hesitating moments before you think you’ve made a decision. With various debt management options available, it can be hard to choose the right one for you – or at least be confident about your choice.

Let’s talk about the facts. If you’re insolvent, it means you cannot pay your debts. By law, there are several things you can choose to solve the problem. You can declare bankruptcy, go under debt management, seek a debt relief order, or go for an individual voluntary agreement or something similar. When faced with these options, an Individual Voluntary Agreement is a good option if:

  • You will be able to pay your debts in IVA each month with your current disposable income.
  • You direct a company and don’t want to lose your position due to bankruptcy.
  • You’re unable to gather enough funds to pay your debts in full.
  • Your loan applications are rejected.
  • You want to take advantage of the asset protection offered by IVA.
  • You feel debt management plans are potentially too lengthy.
  • You want to avoid the severity of declaring bankruptcy.
  • You want to be formally protected from the action creditors can take.

Of course, entering into an IVA is something that requires forethought and understanding of the process.

Will My IVA Affect My Partner?

If your financial actions and responsibilities impact your partner, you will want to make sure that you consider your options and make the best choices. Many people wonder if their formal insolvency through IVA will negatively affect their spouse or partner.  The truth is that your IVA loan may affect your partner if you have joint debts. In this instance, you might want to consider a joint IVA. This is because going through IVA on your own will leave your partner/spouse solely responsible for the debt. If you don’t share accounts and debts, your insolvency and IVA will not affect your partner’s assets or income.

Are My Assets Safe in an IVA?

Generally speaking, your IVA agreement will protect your assets. At the very start of the process, you will need to provide a list of your assets to your insolvency practitioner. Assets include the likes of vehicles, property, art, or other items of considerable value. In most instances, you can retail your car unless it’s a very expensive car that can be deemed excessive – in which case, you may need to sell it to cover costs (don’t worry, you’re allowed to buy a lower-cost replacement car). If you own several cars, that might also come into question.  The best thing to do is tell your insolvency practitioner about all of your assets so advice can be given.