What are the benefits of an IVA and Is it Right for Me?

Sinking into debt can feel overwhelming. It’s like being in a never-ending storm of bills and overdue notices. The pressure builds, anxiety sets in, and suddenly, you’re facing financial instability. It’s a threat that strikes when you’re most vulnerable, affecting your peace of mind and future security. Thus, you need to take action to find a solution to your piling debt issue before it worsens.

But there’s hope: the Individual Voluntary Arrangement (IVA). It’s a structured way out of debt, offering a lifeline to those struggling, including you. But, you need to determine whether it’s right for you by grasping the challenges and outcomes. 

With this article, you will be able to learn whether opting for an IVA is the solution to your financial troubles or whether there is a better option. 

So, without wasting further, let’s get started…

Can I use an IVA to Solve My Unaffordable Debt Issue? 

Determining whether an Individual Voluntary Arrangement (IVA) is suitable for you involves meeting specific criteria outlined by the UK Insolvency Service:

• Affordability: You must demonstrate that you cannot reasonably afford your contractual payments.
• Number of Creditors: You need to owe money to more than two creditors.
• Minimum Debt Level: Your unsecured debts must amount to at least £5000.
• Stable Income: You should have a stable source of income (like employment, benefits, or a personal pension) to make regular monthly payments.

Since an IVA is a formal debt solution with significant implications, it’s crucial to discuss your situation with a professional IVA company before making any decisions. They can clarify any misunderstandings or misconceptions about IVAs and explain other potential debt solutions. Ultimately, consulting with a debt expert will help you determine the most suitable debt solution for your circumstances. 

However, it’s advisable to speak to an advisor for further guidance, even if you believe an IVA is the right choice, so as to be in the safe zone.

You need to reach out to an IVA company or meet an authorised insolvency practitioner in order to start an IVA. They will guide you through the maze of debt solutions to discover if an IVA is your treasure chest. 

But wait, there’s more to consider.

There Are Instances Where an IVA Might Not Be the Right Debt Solution for You

There are situations where an Individual Voluntary Arrangement (IVA) might not be the most suitable debt solution for your circumstances. It’s because an IVA typically involves committing to paying an agreed affordable amount to your creditors monthly over several years. This amount is determined in consultation with a licensed Insolvency Practitioner.

Thus, if you lack a stable job or fixed income, an IVA may not be the optimal choice for managing your debt as it requires regular monthly payments for several years. 

In such cases, exploring alternative debt solutions, such as a Debt Relief Order(DRO), might be more appropriate and feasible to address your debt issues. As you can see, It’s essential to consider your financial stability and resources carefully before deciding on the most suitable debt management strategy.

What Debts Can Be Included in an IVA?

An Individual Voluntary Arrangement (IVA) can cover a range of unsecured debts, which are debts not tied to assets like your home. 

These debts may include:

1. Catalogue and store card debts
2. Credit card debts
3. Personal loans
4. Overdrafts
5. Arrears on utility bills such as gas, electricity, and water
6. Arrears on council tax
7. Arrears on income tax or National Insurance
8. Overpayments of tax credits or benefits
9. Payday loans
10. Debts owed to family and friends
11. Other outstanding bills
12. Joint debts, although both parties must continue their payments

What Debts Can’t Be Included in an IVA?

Certain types of debts, including secured debts, cannot be included in an Individual Voluntary Arrangement (IVA). 

These include:

1. Mortgages
2. Other secured loans
3. Hire purchase agreements
4. Debts resulting from fraud
5. Court fines
6. Arrears on TV licenses
7. Student loans
8. Arrears on child support
9. Social fund loans

These debts are typically excluded from an IVA arrangement. It’s important to note that while IVAs can address many types of unsecured debts, certain debts tied to assets or secured loans typically cannot be included. 

In order to verify whether your debts are compatible with an IVA, you need to get a consultation from a licensed Insolvency Practitioner. He will help you find which debts are eligible for inclusion in your specific IVA.

Understanding the Impact on Your Life if you get an IVA 

An Individual Voluntary Arrangement (IVA) can have several implications for your life, including impacts on your career, home, and credit score. 

Here is how it affects:

• Career: Certain professions, such as those in the police, fire service, prison service, banking, accounting, or legal fields, may have specific regulations regarding IVAs. While many careers remain unaffected, it’s essential to consider any potential ramifications an IVA may have on your job.
• Home Equity: If you own a property, your Insolvency Practitioner will assess its equity when arranging an IVA. While you won’t be forced to sell your home, you may be required to release some equity to repay your debts. This process involves calculating the available equity, which may impact the duration and terms of your IVA.
• Credit Score: An IVA can adversely affect your credit rating. It typically remains on your credit file for six years from its commencement, regardless of early completion. This can pose challenges when seeking credit in the future, as it signals to creditors that you’ve faced difficulties repaying debts.

Each aspect of your life may tilt towards a new horizon. But if you can manage it, then you will slowly reach towards your goal of achieving financial freedom.

Now you may wonder how much you must pay to get an IVA. Let’s find out more about it in the next section.

Charges You May Have to Pay When Applying For an IVA 

The cost of an Individual Voluntary Arrangement (IVA) includes several fees associated with its setup and ongoing management. These costs are outlined in the agreement and deducted from the total sum you pay to your creditors each month. 

Here are the main costs associated with an IVA:

1. Nominee’s Fees: These fees are paid to your Insolvency Practitioner (IP) for their services in setting up the IVA. Nominee’s fees typically amount to around £1000, although this may vary.
2. Supervisor’s Fees: Supervisor’s fees cover the expenses incurred in administering your IVA. These fees typically range between 15% to 20% of the payments you make under the IVA, although some IPs may charge a flat rate instead.
3. Disbursements: Disbursements are costs that your IP may need to pay to third parties for services such as software licenses and insurance. Disbursement costs vary depending on the specifics of your case but generally total up to around £1,200 on average.

It’s important to factor in these costs when considering an IVA as a debt solution, and to discuss them in detail with your Insolvency Practitioner to ensure full transparency and understanding of the financial implications.

How to Apply for an IVA?

Applying for an Individual Voluntary Arrangement (IVA) involves several steps to ensure that you understand the process and make informed decisions about managing your debt. 

Here’s a general guide on how to apply for an IVA:

1. Seek Professional Advice: Contact a qualified debt advisor or licensed Insolvency Practitioner (IP) to discuss your financial situation and determine if an IVA is suitable for you.
2. Initial Assessment: During your consultation, your advisor will review your finances to assess eligibility and discuss potential implications.
3. Proposal Preparation: If an IVA is deemed appropriate, your IP will help prepare a formal proposal outlining your repayment plan.
4. Creditors’ Meeting: Your proposal will be presented to your creditors, who will vote on its acceptance. If approved, the IVA becomes legally binding.
5. IVA Commencement: Once approved, you enter into the IVA agreement, making regular payments to your IP, who distributes funds to creditors.
6. Ongoing Management: Your IP oversees the IVA, liaising with creditors and providing support throughout its duration.
7. Completion: Upon successful completion of payments, you receive a completion certificate, and remaining debts covered by the IVA are discharged.

It’s essential to work closely with your IP throughout the entire process and to fully understand your rights, responsibilities, and the potential consequences of entering into an IVA. Always seek independent financial advice if you have any doubts or concerns.

How to Manage Your IVA

Managing your Individual Voluntary Arrangement (IVA) effectively requires collaboration between you and your Insolvency Practitioner (IP). Here’s how to manage your IVA:

The Role of the Insolvency Practitioner:

Your IP, registered by the Insolvency Practitioners Association, handles various tasks on your behalf:

1. Setting up your IVA: Your IP initiates and structures the IVA, negotiating terms with your creditors.
2. Managing your monthly IVA payments: They oversee your monthly payments and ensure they are distributed among your creditors as per the agreement.
3. Keeping your IP informed: It’s crucial to keep your IP updated on any changes in your financial circumstances. If you receive a lump sum or experience significant changes, inform your IP promptly for necessary adjustments.

Your Role during the IVA:

1. Stick to your repayment plan: It’s essential to adhere to your agreed-upon repayment plan by making timely monthly payments. Failure to do so could jeopardize the agreement and impact your financial standing.
2. Inform your IP of financial changes: If your financial circumstances change, such as a change in income or expenses, notify your IP immediately. This ensures that your IVA remains viable and suitable for your current situation.

By working closely with your IP and fulfilling your responsibilities, you can effectively manage your IVA and work towards becoming debt-free within the agreed timeframe.

How to Cancel Your IVA

Here’s what you can do if your circumstances have changed and you need to cancel your Individual Voluntary Arrangement (IVA):

Option 1: Request Cancellation:

1. Contact Your Insolvency Practitioner (IP): Write or email your IP to request cancellation of your IVA.
2. Provide Reasoning: Explain why you believe cancellation is necessary. This could include significant changes in your financial situation.
3. Agreement: If your IP agrees that cancellation is appropriate, they will proceed to fail the IVA, terminating the agreement.

Option 2: Cease Debt Payments:

1. Cease Payments: If your IP does not agree to cancel the IVA, you can choose to stop making debt payments.
2. Consequences: This action breaches the terms of the IVA, resulting in a failed IVA. The process of failing the IVA may take several weeks or months, depending on your IP’s actions.

Whatever the option you select, It’s essential to communicate openly with your IP and consider the potential consequences of cancelling your IVA before taking action.

What Happens After Your IVA Fails

Your Insolvency Practitioner (IP) will send you a notice of termination indicating that your Individual Voluntary Arrangement (IVA) has failed. After your IVA fails, it’s essential to take proactive steps to address your remaining debt and avoid further financial consequences. 

Responsibilities Remain:

• You are still responsible for addressing your remaining debt/debts: You must make arrangements with your creditors to resolve the outstanding debts.
• Payment of IP Fees: If you haven’t already paid your IP fees, you will still be required to do so.
• Act Quickly: It’s crucial to act swiftly to address your remaining debt. Creditors may begin charging interest on the outstanding debts. There’s a risk of bankruptcy proceedings initiated by either your IP or your creditors if the remaining debt is not resolved promptly.

Consider seeking advice from a financial advisor or debt management professional to navigate this situation effectively.