How do IVAs work?

If you’re finding yourself in debt and looking for solutions, the chances are you’ve heard of an IVA – Individual Voluntary Arrangement. IVAs are an increasingly popular solution for many consumers struggling with debt in England, Wales and Northern Ireland – but what exactly are they and how do they work?

We’ve broken down the whole process for you so you can have a grasp on this type of debt solution.

1. Getting your IVA started
2. What details are needed?
3. Getting your IVA proposal approved
4. Keeping up with an IVA
5. How much does an IVA cost?
6. What happens to your assets on an IVA?
7. Annual review of your IVA
8. Experiencing issues on an IVA
9. What happens at the end of an IVA

1. Getting your IVA started

When getting started with any debt solutions, we’d always advise seeking help from debt experts such as ourselves. There are some rough guidelines you can use to check your IVA eligibility if this is the solution you are wanting to consider, and you should also consider all the pros and cons of an IVA before making any decision. (As part of our process, we’ll also make sure you are aware of all possible solutions you may qualify for.)

Since an IVA is a legal agreement, you will need to get this approved via a Licensed Insolvency Practitioner, so services such as ourselves help get together all the relevant information needed to get things moving.

2. What details are needed?

To be considered for an IVA, there are a few things you’ll need to get together before we know you qualify. A good understanding of your personal circumstances (eg. your income), and your debts (eg. creditors/amount owed etc.) will be required and backed up by things such as bank statements, payslips and creditor letters.

Once we have all this information, we can build a proposal for your IVA, which will involve a breakdown of all the debts included, an affordable monthly amount for you to pay and finally the amount of debt your creditors will agree to write off at the end of the IVA.

Credit Check
If you aren’t sure of the exact amounts you owe or who your creditors are, there’s no need to worry. We can carry out a soft credit check for free – this will bring up all the necessary creditor details we need. Since it is a ‘soft’ check, this does not leave a negative footprint on your credit file that others will be able to see.

3. Getting your IVA proposal approved

In order to get your IVA approved, your Insolvency Practitioner will hold a meeting with your creditors – as long as 75% of them agree to the terms, then your IVA will be approved and all of your unsecured debts will be included.

Your money advisor has little business putting you forward for an IVA if the likelihood of you being accepted for one is low. That said, there’s a slight chance that unexpected things do arise, which may result in your IVA application being rejected. In that case, there would be nothing to worry about – and you should be advised of why this is and what other options you might want to consider.

Once approved, your IVA will only take a couple of weeks to set up completely, once all your documents are signed by both you and your creditors.

4. Keeping up with an IVA

IVAs will last a minimum of 5 years – this may increase to 6 for non-homeowners. During this time there are expectations of both you and your creditors. These expectations include:

You:

• Keep up with your monthly repayments
• Don’t apply for credit totalling more than £500 without consulting with your Insolvency Practitioner first
• Cooperate with your Insolvency Practitioner and inform them of any changes in circumstance at the earliest convenience

Your creditors:

• Freeze interest and charges on your debts during the IVA
• Cease chasing you regarding your debt
• No longer contact you directly – any queries need to go via your Insolvency Practitioner

Your Insolvency Practitioner:

• Negotiate with you and your creditors, being the point of correspondence for each
• Support you every step of the way for the duration of your IVA
• Conduct an annual review of your IVA to determine that you can still afford the agreement

5. How much does an IVA cost?

There are certain costs and fees involved with an IVA, but you will never be made to pay these upfront. They are included in your monthly payment, so there are no surprises and other payments to consider. This will also be outlined in your proposal, so you’ll know exactly what your suggested payment will be before you sign anything. Your creditors will also have to agree to this, as they allow any fees of yours to be paid from the money that is going towards them.

We have written a more detailed breakdown of the costs and fees involved with an IVA, but a brief summary of these are:

• A nominee’s fee – this is paid first and covers the cost of getting your IVA application together.
• A Supervisor’s fee – covers the ongoing costs of running your IVA
• Other costs/expenses – any other administrative costs involved during the process

6. What happens to your assets with an IVA?

An IVA won’t typically require you to sell your assets, however, there may be some circumstances where your creditors may require you to take particular steps.

For example, depending on the price of your car, your creditors may request you sell it if it’s expensive, or if your hire purchase price for it is considered to be high you may be requested to change this to something reasonable.

Releasing equity

If you are a homeowner, then after your 5th year on the IVA, you may be asked to re-value your home and release any equity into the IVA. For those who are unable to do so, your IVA may be extended by 12 months.

7. Annual Review of your IVA

Every year, your Insolvency Practitioner will conduct a financial review of your circumstances. This is to confirm you can still afford your monthly payments and determine whether anything has changed.
For this review, you may be asked to provide the following:

• Bank statements
• Payslips / P60s
• Other proof of income/expenditure

If things have changed before your review comes around then it’s no problem, however, you must inform your Insolvency Practitioner as soon as possible. This is so that they can review sooner rather than later and if needed, reach out to your creditors to negotiate if anything needs to change.

8. Experiencing issues whilst on an IVA

Once you’re on an IVA, you enter a legally binding contract. This means that you are protected should you encounter issues along the way, and your creditors have to stick to the guidelines (along with yourself.)

Your Insolvency Practitioner is there to support you should any issues arise and they will negotiate with both you and your creditors to ensure a process that’s as smooth as possible.

9. What happens at the end of an IVA?

The Individual Voluntary Arrangement will typically last 60 months – 5 years. After this time you may release equity from your home if you are a homeowner, bringing the IVA to an end, or you may pay into the IVA for another 12 months if you aren’t able to re-mortgage.

Once your Individual Voluntary Arrangement is complete, you’ll receive what’s called a Completion Certificate to confirm so.

When the IVA is finished, you will no longer pay towards your debt and you will have a clean slate. In addition, the amount of money you paid monthly towards your debt can now go towards your disposable income.

Your credit file
Once you enter an IVA, it will be visible on your credit file. This will be visible from the first day, until 6 years after this date. During this time, lenders and other people who check this will know that you are on an IVA, making it hard to acquire further credit or a mortgage – although, with a large level of debt already it’s not likely you would have been able to get these anyway.

Insolvency Register
When you begin an IVA, your details will be published on the public Insolvency Register. This is a public database that contains details of people who have been declared insolvent – through instances such as bankruptcy and IVAs. Your details will be visible for 3 months following the completion of your IVA.

Ending an IVA early
If you pay off your IVA early, it will still remain visible on your credit file for 6 years still from the date it is approved.

Paying off your IVA early may be an option in certain situations such as receiving a windfall or other lump sum payment.

Cancelling an IVA
An IVA is a legally binding agreement between you and your creditors, therefore you are unable to simply withdraw from this if you change your mind. You can request to end it and if your creditors and Insolvency Practitioner agree, then this may be closed, but other arrangements may be put in place – for example, your creditors may apply for you to be made bankrupt.
Alternatively, terminating your IVA will mean that your creditors will begin to contact you separately to recover their money, and will also be able to resume charging interest.

Get your IVA on the way

If you are seriously considering an IVA or would like to discuss your available debt solutions, our agents are here to help. For free and impartial advice don’t hesitate to reach out to our advisors on 0333 242 0013, or request a callback for a time that suits you!