An Individual Voluntary Arrangement may be appropriate for some personal debt situations and can be a perfect solution for better money and debt management.
It is a legally-binding formal agreement for the repayment of personal debts owed to creditors over a period of up to five years; whilst preventing any legal action. An IVA can work for both priority and non-priority debts, however, only in England, Wales, and Northern Ireland. Scotland has its own version which is known as a protected trust deed.
Who is an Individual Voluntary Arrangement right for?
Individual Voluntary Arrangements are only appropriate for certain situations and the following are prerequisites to consider:
- You can spare at least £100 of your personal money each month;
- You have a minimum of two debts;
- Your debt exceeds £10,000;
- You have two or more creditors.
Advantages of an Individual Voluntary Arrangement
- Once the IVA is in place, you have more control and you’re protected from any further legal creditor pressure;
- IVAs are based over an agreed period of up to five years and after the five years is complete you can begin to move past the situation and focus on the rest of your life;
- IVAs are based on a repayment of a proportionate amount of your debt. Creditors may be more open to accepting a lower percentage than 100%; due to the reduced chances of regaining the debt that is owed to them if you were to declare bankruptcy;
- They’re designed to be affordable, based on your level of income and outgoings in your personal cash-flow.
Disadvantages of an Individual Voluntary Arrangement
- For an IVA to be viable, your creditors must agree to it;
- IVA’s effect your credit score and remain on your credit file for six years from the date the creditors agree to it. Even if you paid it back immediately, this date is fixed;
- The IVA will also be listed on the Insolvency Services Register;
- You’ll have to keep to a strict monetary budget for the duration. Any bonuses you receive at work, for example, must be declared and some contributed towards your debt repayments;
- If there is equity in your home, you may have to try and re-mortgage and this may incur an increased rate of interest.
Can all Debts be Included in an IVA?
Most common debt types can be included, such as credit cards and loans. ‘Secured’ debts (such as mortgages) cannot be included and must be continued separately.
If the debts that you are addressing belong to a limited company, you may want to seek advice on a company voluntary arrangement, as it could be a more appropriate solution.
What is the Individual Voluntary Arrangement Process?
- Finding an Insolvency Practitioner – As a formal insolvency process you’ll need an IP to assess your finances and work out whether the IVA is likely to be approved;
- Insolvency Practitioner creates a proposal repayment plan and monthly budget;
- Creditors Meeting – Once the IP has submitted your proposal, the Creditors will meet amongst themselves and vote on whether to accept it. 75% or more need to agree for it to be approved.
Are There any Alternatives to an IVA?
If an IVA isn’t suitable for you, there are three basic alternatives:
- Declaring Bankruptcy;
- A Debt Management Plan;
- A Debt Relief Order (DRO) These are only available to those with a debt of £20,000 or less, and minimal assets or income.
What are the Fees Involved with an Individual Voluntary Arrangement?
IVA fees will depend upon the level and complexity of your debt. On average, they often cost around £4,000+, which is charged by the Insolvency Practitioner and is factored into the overall payment plan, and is spread over a period of months or years.
Do You Need Help and Advice with your IVA?
For help and advice on an Individual Voluntary Arrangement please get in touch with us on 0800 074 6757.