If you are struggling with debt, the best way to deal with your financial circumstances is to act now – or your debt problem could get worse.
There are plenty of debt solutions available to struggling borrowers in the UK and going over them with a professional debt agent can give you a chance to regain financial control. That way, you can leave your money-related problems in the past and begin a fresh chapter in your life.
An IVA is one way to pay back debts that you are struggling with. IVAs are formal agreements that help borrowers pay off their unsecured debts at an affordable rate over a set period. IVAs were initially introduced by the parliament as an alternative to bankruptcy in England and Wales.
Over time, IVAs became one of the most widely used debt solutions in the UK. For those who are eligible, IVAs present an opportunity to resolve unsecured debts you may be struggling with. In most cases, a successful IVA agreement results in a major portion of your debt being written off.
At Money Advisor, we offer debt support and assistance to hundreds of UK-based borrowers. Since we often get questions about what an IVA is, how it works, and its eligibility criteria, we decided to break it down for readers in this guide.
You could write Off Your Unaffordable Debt
What is IVA?
IVA is short for Individual Voluntary Arrangement. It is a legal and formal arrangement between you and your unsecured creditors that agrees on a monthly payment plan. The payment plan spans over a set period of time and addresses multiple debts through one monthly payment, so you don’t have to keep track of each debt you owe.
Here are the basics of an individual voluntary arrangement:
- To enter an IVA, you and your creditors need to agree on a monthly payment plan
- Typically, the duration of an IVA is 5 years (but this is not always the case), meaning when you are in an IVA, you will need to make monthly payments for a span of five years.
- From the one payment you make every month, your Insolvency Practitioner (IP) is then responsible for ensuring your creditors receive the agreed portion of the repayment and sending this to them.
- An IP is a licensed insolvency practitioner who drafts your IVA proposal, negotiates your IVA, and interacts with your creditors on your behalf throughout the term of your IVA.
- After you enter an IVA, all interests, penalties, and fees on your debt are frozen (however, if you do not complete the arrangement, your creditors could reapply any interest or charges).
- Once you are in an IVA, your creditors cannot take court action against you or contact you to pressurise you. All correspondence with your creditors becomes the responsibility of your IP.
- At the end of your IVA (usually after 5 years), all your outstanding debts that were a part of your agreement are written off.
- In most cases, creditors are more likely to agree to an IVA because they can recover more money through an IVA than if you declare bankruptcy.
- For an IVA to come into effect, 75% of the creditors voting on your IVA by debt value need to agree to it.
- The details of your IVA are included on the Individual Insolvency Register, an online register that is accessible by the public.
Here is a more detailed guide to an IVA if you are interested.
How Much Does an IVA Cost?
There are no surprise charges associated with an IVA. There are costs involved in setting up an IVA and any fees for the ongoing management of the IVA are explained in the agreement.
All IVA-related costs are deducted from the total sum you pay to your creditors every month under an active agreement.
There are three main costs associated with an IVA: nominee’s fees, supervisor’s fees, and disbursements. Let’s look at each of them in detail:
Paid to your IP for their services. Nominee’s fees usually amount to £1000
The supervisor’s fees cover the expenses involved in implementing your IVA. The fees range between 15 – 20% of payments you make under your IVA but some IPs prefer charging a flat rate.
These cover the amount your IP may have to pay to third parties for software licenses and insurance. Disbursements vary from case to case but they total up to £1,200 on average.
Is an IVA Right for Me?
The eligibility criteria for an IVA is given below:
- You must be able to show you cannot reasonably afford the contractual payments.
- You must owe money to more than 2 creditors.
- You must have unsecured debts amounting to £5000 or more.
- You must have a stable source of income (such as employment, benefits, pension) that allows you to make monthly payments of at least £
- You must reside in England or Wales (for Scotland, check out Trust Deeds)
An IVA is a formal debt solution and the decision to enter it should be given serious consideration due to the impact it has. That is why you should discuss your situation with a debt expert before taking any step. A debt expert can explain this and other solutions to you so you can decide what is the best debt solution for you.
Get Debt Help
Money Advisor is committed to helping people get out of debt and manage their finances in a better manner. If you or your loved ones are struggling to repay their debts or regain control of their finances, we are here to help. Get in touch with our friendly and impartial specialists for resources, debt help, and support.