IVA

What is an IVA?

IVA stands for Individual Voluntary Arrangement and is a type of insolvency. It is a formal, legally-binding agreement with your creditors to pay back part or all of your debt over a period of time.

How does an IVA work?

An IVA can only be set up by a qualified person, such as a lawyer or an accountant. They will charge a fee for carrying out this process for you, which usually averages around £5000. It is important to check upfront what the fee for your IVA will be.

You will then need to work out a repayment plan with the insolvency practitioner. This is given to your creditors and, if they agree, you then pay back a set amount each month over the timeframe agreed. Payments are made to an insolvency practitioner who then divides the money between your creditors.

Some of this money is kept each month to cover the practitioner’s fees. If you arrange your IVA through a debt management scheme you are likely to pay a significantly higher fee and a greater proportion of your repayments will be kept by them. As such it is crucial to ascertain exactly how much of your monthly payment will actually be used to repay your creditors.

Your IVA will be available to view on a public register, which is visible to prospective lenders and can seriously affect your chances of being accepted for credit.

Only unsecured debts included in the IVA will be written off at the end of the arrangement. Any secured debts that you hold will still be outstanding. If your IVA fails then your creditors may request that your practitioner files for your bankruptcy.

What can be included in an IVA?

A: There are no minimum or maximum sums set by law for an IVA to be arranged. Most debts can be included however the most common types are:

  • Credit cards
  • Personal loans
  • Store cards
  • Catalogues
  • Charge cards
  • Bank and building society loans and overdrafts

You can also include the following debts, though this is less common:

  • Council tax arrears
  • Tax debts
  • Electricity and gas debt

While some debts such as mortgages, secured loans or rent arrears can be included in an IVA your creditors are not likely to give permission for this to be included.

You cannot include certain debts in your IVA, such as:

  • Court ordered maintenance arrears
  • Child support arrears
  • Student loans
  • Magistrates’ court fine

Who is eligible for an IVA?

You must meet certain criteria to be eligible for an IVA. You must have some spare income each month in order to gradually pay back your creditors. This is usually at least £100 per month. Creditors have to accept your IVA before it can proceed and if payments are lower than this they are likely to refuse the agreement.

As part of the monthly payment arrangement you will need a regular and predictable income to ensure that each payment can be met. If you do not meet this criteria then creditors are not likely to accept the arrangement as they will be less certain that they will receive the agreed sum.

If you have a lump sum of money then this will likely be included in the IVA and will then have to be used to repay your creditors.

You do not need to have any particular assets to enter into an IVA, however any assets you do have can be used to pay the total balance. If you do have any assets you must disclose them to your insolvency practitioner. They will determine whether the assets need to be included in your IVA. To not disclose your assets will be breaking the law.

What impact will an IVA have on your credit report?

IVAs will reported for a minimum of 6 years from the date you entered into the arrangement, even once it has been discharged. If your IVA is not discharged at the end of this time then it will remain on your report until this is completed.

Any accounts included in your IVA will remain on your credit report, and any defaults, Arrangements to Pay and arrears, will continue to be reported as separate entries with their own removal dates. Most lenders will default your account as soon as you enter into your IVA however it can take significantly longer and it is entirely at the lender’s discretion as to when they do this.

An IVA will have a significant negative impact on your Credit Score and overall Creditworthiness while it is reported on your file and you are likely to have extreme difficulty obtaining further credit during this time. Most lenders will automatically decline your application if an insolvency is present on your Credit Report whether it has been discharged or not.

You must inform your Insolvency Practitioner if you wish to take out more than £500 of credit during the life of your agreement.

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