IVA Pros and Cons

An IVA is a formal arrangement between the customer and creditors (which is legally binding) to pay all or part of their debts. The solution is set up professionally by an authorised Insolvency Practitioner. They generally last five years, so the customer would be expected to pay everything they can afford outside of agreed ‘reasonable’ living costs.

As with any insolvency process, there are advantages and disadvantages. Below are some of the advantages to be considered when deciding if an IVA is right for you:

• No upfront fees are charged for setting up the IVA.
• If your IVA is approved, creditors who vote against your proposal or who do not vote at all are still bound by it.
• Once the IVA is approved, interest and charges are frozen by law, provided you keep up your payments.
• Your insolvency practitioner will help you prepare your proposal, including agreeing on the level of your household and personal spending based on guidelines acceptable to creditors.
• You make only a single payment each month. Your insolvency practitioner is responsible for administering and distributing your payments.
• You will never be forced to sell your home in an IVA.
• On successful completion of the IVA, the balance of what you owe your unsecured creditors included within the IVA is written off.

As with any insolvency process, you should consider the consequences of entering into an IVA. These include:

• During the term of the IVA, there are restrictions placed on your expenditure.
• Not all debts can be included in an IVA; for example, student loans, child support and maintenance, magistrate court fines and social fund loans are excluded from an IVA, but an allowance can be given to enable you to continue repaying these.
• Creditors are free to reject your IVA proposal.
• If you become entitled to any windfalls or inheritance over and above £500 during the term of the IVA, you may be required to pay them into the arrangement.
• If you fail to make the payments due under the terms of your IVA, then your arrangement could fail. If your circumstances change, the IP can ask creditors to agree to an amended offer; however, if creditors refuse to accept amended terms, the IVA may fail.
• If your IVA fails, you may still owe your creditors the amount you owe at the outset of the IVA.
• IVAs are recorded on the Insolvency Register, which is a public register.
• An IVA remains on your credit file for six years after it is accepted, which may harm your credit score.

Your IVA will be registered on your credit record and it will stay on the register for the period of your IVA and for up to 12 months after your IVA has concluded. The effect of your IVA on your credit rating will depend to some extent on what your credit rating was like before you commenced your IVA.

Typically, an IVA lasts for 5 years. During your fifth year, you may be asked to release equity in your home if you’re a homeowner.

If this isn’t possible, the IVA may be extended by 12 months.

Upon completion, any outstanding debt will be written off. 12 months later, the IVA will no longer appear on your credit file.

An IVA typically involves you paying back part of your debts over a set period of time – this is a legally binding contract.

Bankruptcy is a court order. It ends your liability for debts but can mean that your assets are sold in order to pay the creditors back.

Visit our page for further information if you’re considering an IVA or Bankruptcy.

Usually, an IVA is a 5 year contract which involves you paying back part of your debts over a set period of time, which legally protects your assets.

A Debt Relief Order (DRO) is much shorter, lasting 12 months. However, it is intended for those with little to no assets and with low affordability.

Visit our page for further information if you’re considering an IVA or Debt Relief Order.

An IVA is a formal agreement, meaning you would have legal protection from your creditors, whereas a Debt Management Plan is informal. Both involve you making monthly repayments to your debts.

We have provided some further similarities and differences if you are considering an IVA or Debt Management Plan.

An IVA will take around 3 to 6 weeks to set up, depending on how quickly you can gather the supporting information required to present to your creditors.

Just because you might not qualify for an IVA does not mean that you won’t qualify for another scheme. There are other arrangements to pay your debts back, we will refer you to an FCA firm regulated to provide advice on alternative solutions.

No, you can enter into an IVA if you’re unemployed, self-employed, part-time, full time, retired or in receipt of benefits. As long as you have a disposable income above £90 per month after you’ve covered your essential living costs such as household bills, food, car etc.

You can enter into an IVA if you’re a homeowner, tenant or living with your family/friends.

If you are a homeowner, you may be asked to pay into your IVA for 72 months in total if your equity exceeds £10k.

Yes, but this is likely to mean that the majority, if not all, of the payments made by you into the IVA will be used to pay the fees and costs of the IVA.

IVA fees are payable if you decide to go ahead with the solution and paid as a part of your monthly payment – not in addition.

Your payment into the IVA is based on your individual circumstances. One of our Financial Assessors will help you determine an appropriate monthly amount based on the information you provide about your income and debts.

Find out further information on IVA Costs and Fees.

If you do not keep up your monthly payments, this could lead to your IVA being terminated. If your IVA fails there is a risk that the majority, if not all, of the payments made by you into the IVA will be used to pay the fees and costs of the IVA and very little will be paid to your creditors.