IVAs - The Facts
"I heard the ads on the radio about unfair credit agreements and decided to do some research first. After speaking to your advisor I opted for an IVA and will clear £36,000 of debt in 5 years."
Individual Voluntary Arrangements were introduced by the government over 20 years ago to help people avoid bankruptcy. They recognised that increasing numbers were becoming trapped by debt and that a way out was needed that was less drastic than bankruptcy.
Although IVAs have been around for some time it is only over the last few years that people have been made aware of them and the legislation used to clear debt quickly. We have seen a boom in their popularity and last year over £1 billion was written off through IVAs.
How an IVA works:
- An income and expenditure assessment is completed by a trained debt advisor. This budget plan ensures that essential bills such as a mortgage or council tax are paid first and establishes how much you can afford to pay towards your debt. During the IVA you will only ever be expected to pay what you can afford towards your debt and monthly payments are usually a fraction of existing repayments.
- Provided your creditors will receive a minimum of 25% of their money back and an application form will be issued. This must be completed and returned with payslips and proof of all debts.
- Once the pack is received the initial figures will be confirmed and the IVA contract will begin to be drafted. The Insolvency Practitioner will contact all creditors to explain what is going on and at that point the phone calls and debt collection letters should stop.
- The IVA proposal is now completed and presented (along with a nominee’s report which explains why the Insolvency Practitioner believes the agreement should be accepted) to you and all of your creditors for approval. A date is then set for the creditors meeting. During which the creditors will vote on the proposed offer or suggest amendments to it.
- With so many IVAs being agreed it is actually rare for the creditors to meet and instead they normally vote via fax. As long as 75% of the creditors vote in favour the IVA is agreed and recognised by law. Crucially, this 75% is not based on the number of creditors but the monetary value of the debt. For example one creditor (out of 10) could push through an IVA if they are owed the vast majority of the debt. The day of the meeting can be a nervous one but as long as the IVA has been drafted properly it should be approved and you can look forward to being debt free.
- The whole process can run quite smoothly as long as you choose the right Insolvency Practice. Using a reputable company can help to get the IVA agreed and set up in around six weeks. The Insolvency Practitioner we work with has over 20 years insolvency experience and holds a valid consumer credit license.
- The IVA will then (normally) last five years and at the end of the agreement any outstanding debt will be written off completely. This can be as much as 75% of the initial amount although typically around 58% is written off.
What’s the catch?
An IVA can seem too good to be true but it really is an amazing piece of legislation that can clear all your unsecured debt in 60 months.
There are however some important things to consider:
- You may not qualify for an IVA if you have considerable equity in your home. An IVA proposal compares what the creditors will receive in an IVA to their return in bankruptcy. If they will receive more in bankruptcy then they will not approve the IVA.
- The IVA will be listed on your credit file and prevent you from obtaining credit for five years. It is important to remember that an IVA requires commitment and is all about becoming completely debt free. Whilst it can be hard, taking out credit during the agreement defeats the object. At the end of the IVA you will have dealt with your debts in a responsible way and this commitment to paying back what you can afford is why the creditors write off the remaining debt.
- If you do not stick to the agreement then the Insolvency Practitioner is required by law to declare you bankrupt. If you are ever struggling with the payments then it is important to contact your Insolvency Practitioner as most are flexible and will propose a lower payment (often temporarily) on your behalf.
- If you have less than £15,000 of debt it is unlikely that you will need or qualify for an IVA. However this amount can include overdrafts, catalogues, store cards and even partners debts if a joint proposal is made. You must also allow for all the interest payable on loans over the whole term when working out how much you owe.
An IVA avoids the stigma of bankruptcy as it is not advertised in the local newspaper and should not affect your career. It allows you to pay one affordable payment each month and stops the debt collection calls that can ruin lives.
If you are considering an IVA then why not complete our free debt test. We can then confirm that you qualify and if it is the best way to clear your debt.
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