Individual voluntary arrangements
Definition of an IVA
An Individual Voluntary Arrangement, more often known as an IVA, is a contract between you and your lender. It’s a legally binding agreement, whereby your debts are frozen. You set out a formal proposal to pay your debt within a specified period, usually five years. This will probably involve you committing to a monthly payment likely to be a minimum of £200. However, after the period has ended, the outstanding debt is written off.
This looks very attractive, particularly if you’re struggling with debt. The prospect of having your debt cancelled after a few years of reduced payments looks enticing. This is precisely the angle taken by a host of firms offering IVA advice, and marketing themselves aggressively on daytime TV and elsewhere. However, these firms are not charities; they are making lots of money from often desperate people through the fees they charge. And despite their glib claims that the process is easy, IVAs are a serious move, not to be undertaken lightly; they are an alternative to bankruptcy. Having said that, if you are in dire straits debt-wise, they may be worth considering.
Who is eligible for an IVA?
If you’re resident in England, Wales or Northern Ireland and have considerable unsecured loans (normally £20,000 or more), you could take out an IVA. You will need a regular income. Most people selecting the IVA route have valuable assets such as a home or a car.
If you are a resident of Scotland there is always the option of a trust deed which is not available in other UK countries.
What types of debt can be included in an IVA?
Not all debts can be part of the agreement. While personal loans, overdrafts, credit cards, student loans, catalogue debts, tax or VAT owed to HMRC can, mortgages and other secured loans cannot, nor can rent and council tax arrears or other sums owed by you.
Conditions for obtaining an IVA
You won’t have to sell your home, but you might be forced to remortgage it and release a substantial amount of the equity in it. Your other assets should be secure; however, you will almost certainly have to cash in any endowment plan being used to repay your mortgage loan, and also give up any savings you may have.
First step - seek advice
Because an IVA is such a serious undertaking, you should start by getting specialist help - and not from a company providing advice in order to make money out of you! Remember that these companies make their money from IVAs, so they will want you to go down this route - even if it isn’t your best option. Make sure you get advice first from a not-for-profit debt counsellor.
How Individual Voluntary Arrangements work
Because an IVA is a legally binding contract, you’ll need help setting one up. The person to do that is called an Insolvency Practitioner. These are usually accountants or solicitors. Your Insolvency Practitioner will assess your circumstances, talk to your creditors and set up the IVA for you. This will take into account all your incoming and outgoing money and work out how much you can pay.
Your Insolvency Practitioner will also explain all the other routes open to you, and all the implications the IVA will have for you. If you decide to proceed, an "Interim Order" will probably be obtained through the county court, preventing you from being forced into bankruptcy by your creditors and protecting you from other actions by them.
Will an IVA help me?
Your Insolvency Practitioner will send your IVA to your creditors, who will then vote on whether to approve it. If those creditors who are lending you 75 per cent or more of your money vote in favour, the IVA will go ahead - and then be binding even on those who voted against it. If it does go ahead, your IVA will begin. As long as you make all the monthly payments (usually 60 months’ worth), at the end of the term your debt will be written off.
IVA companies - How much will specialist fees cost?
Don’t be taken in by misleading TV ads that suggest you could write off as much as 90 per cent of your debt through an IVA. Even if the IVA is approved, you will end up paying back at least 30p in the pound. (Possibly more, as banks have recently become more demanding when approving deals.) That would mean that if you owed, say, £30,000 in debt, you would have to pay back at least £9,000 over the five years of the IVA. Furthermore, if you do your IVA through one of the IVA companies, you could end up paying lots more in fees to them.
The moral of the story is this: IVAs are a serious undertaking, and you only consider them if you’re really struggling with debt, unable to pay even the minimum payments. And even if you are in this situation, get specialist, independent advice before you do anything else.