What is an IVA?
An IVA is an Individual Voluntary Arrangement. It is a formal alternative for people who would like to avoid bankruptcy.
It is used when you are in debt to several creditors and need a plan or arrangement to suitably manage this debt. An IVA will essentially freeze your debts and will allow you to pay them back over time. It will also protect you from your creditors taking action against you. It is a formal repayment proposal that is arranged by a qualified professional called an Insolvency Practitioner. The Insolvency Practitioner will present the proposal to a debtor’s creditors and attempt to gain agreement for it.
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How can I apply for an IVA?
You can apply for an IVA if you can afford to pay a suitable contribution towards your debts. The Insolvency Practitioner will work with you to determine what you can afford to pay. The debtor will have to provide information regarding their financial situation. This will include an overview of all debts, assets in their name, income and expenditure and all creditors. You will need to show you have a regular source of income to cover the repayments, which will usually extend over five to six years. The IVA will be based on your circumstances and what you can afford to pay.
The Insolvency Practitioner will contact all the creditors, in an attempt to get approval from them. They must seek approval from creditors holding 75% of your debts for it to proceed. Once it is signed and agreed, it is a legally binding agreement between the debtor and creditors, meaning no one can back out. It is important to note, the IVA can potentially be cancelled by the Insolvency Practitioner if repayments are not adhered to. If this is the case the Insolvency Practitioner can potentially make you bankrupt.
What are the costs associated with an IVA?
Although individual circumstances will be different, there are usually two fees associated with an IVA. You will need to pay an initial set up fee with the Insolvency Practitioner. There will then be ongoing fees for the course of the IVA, based on the repayments you make.
Will an IVA be made public? Is there an IVA Register?
All IVA’s are added to the Individual Insolvency Register. Here you will find details about all insolvency cases in England and Wales. This will cover all bankruptcies, Debt Relief Orders and Individual Voluntary Arrangements. You can search the Insolvency Register by individual name or a companies trading name.
Insolvency records are usually removed from the register within three months of the case ending.
Do I qualify for an Individual Voluntary Arrangement?
An Insolvency Practitioner will be able to advise on this. They will use the following criteria to base their decision on whether you’re eligible or not: –
- A regular source of income
- A minimum level of debt of £5,000, with a minimum of two credit lines
- You must live in England, Wales or Northern Ireland
- You must be able to pay at least £80 per month
- The IVA should reap a higher return for your creditors than bankruptcy would do
What are the main differences between an IVA and bankruptcy?
Both are a form of insolvency and are legal processes that will sit on your credit file at some point.
- An IVA generally lasts longer, up to five or size years. You could potentially be discharged from bankruptcy after 12 months. However, you may be asked to contribute to the bankruptcy for three years
- You don’t need any surplus income to go bankrupt. You would usually need £100+ of surplus income you can pay into the arrangement.
- Both IVA’s and bankruptcy will involve some cost. For IVA’s there is usually an initial set up fee and an ongoing monthly payment you pay into the arrangement, plus a percentage of this to the Insolvency Practitioner. If you go bankrupt, you will need to pay an initial deposit before bankruptcy (usually £680 to apply to become bankrupt), plus any potential court fees.
Insolvency Register and Publicity
- All IVA’s and bankruptcies are added to the Individual Insolvency Register. This is searchable by the public
- Bankruptcy is also advertised in the Gazette
Impact on your Credit File
- Both will be on your credit file for six years. If the IVA lasts longer than this, it remains on the credit file until the end of its term. It is possible to rebuild a credit rating over time, although some lenders may be reluctant to provide credit unless favourable terms are agreed for them,
The main point of contact
- Your main point of contact with an IVA is an Insolvency Practitioner. The IP would initially act as a Nominee. If your IVA is approved, they would then act as administrator and supervisor of the arrangement. For bankruptcy, you will be liaising with the Official Receiver
Potential Loss of Assets
- If you are made bankrupt, you must give control of your assets to the Official Receiver who will decide whether to sell any of your assets, such as your home, for the benefit of creditors. An IVA may require you to release some equity in your home for example, but it is less likely you will need to sell your home compared with bankruptcy.
Impact on Employment
- If you are made bankrupt or take out an IVA, both could impact future employment. Due to the additional publicity associated with bankruptcy, there is a greater chance of an employer becoming aware of it, as opposed to an IVA. Some jobs make it a condition that employees have no issues with debt, such as law and accountancy.
Impact on Banking
- If you are made bankrupt, all of your bank accounts are frozen for a while. Any credit balance you may have can be claimed by the creditors. With an IVA your bank accounts will remain open, however, if the bank is one of your creditors they have the right to offset some of their debt against the bank account.
- In both scenarios access to opening a new account may be limited, although some banks offer basic accounts for people in this situation.
What debts can be paid off with an IVA?
An IVA can be used to pay off some common debts. These include: –
- Personal loans and overdrafts
- Credit cards, store cards and catalogue debt
- Hire purchase debts
- Council Tax Arrears
- Money owed to HMRC
- Mortgage Arrears
What debts cannot be included in an IVA?
There are several debts you can’t put towards an IVA. These include: –
- Student loan debt
- Child Maintenance Arrears
- Magistrate court fines
- Car Finance Arrears
There are other insolvency options to consider if you feel an Individual Involuntary Arrangement is not right for you. You may wish to consider Bankruptcyor a Debt Relief Order (DRO).