An IVA (Individual Voluntary Arrangement) is a formal, legally binding agreement between you and the creditors you owe to make affordable payments to pay off your debt over a period of time, usually five or six years. As long as you keep up with IVA payments, if there is still debt left at the end of the period, it is written off.
IVAs are not available in Scotland but a Protected Trust Deed is similar.
It’s important to remember that you should only go for formal debt advice if it’s right for you. For example, just because your debts are big, it doesn’t necessarily mean you need formal debt advice - if you can service your debts, even at the minimum level, different solutions are available, some of which you can find through the ilumoni app.
What is an IVA?
An IVA must be set up by an insolvency practitioner and this usually means the fees are high - typically between £4000 and £5000 - and you will pay them back as part of the agreement. We recommend that you seek advice from one of the charities listed below to make sure you set up any IVA in the best possible way.
You must include 75% of your debt though there are certain debts you cannot include, and for debts below £10,000, the fees associated with an IVA may mean it is not the best solution.
Debts you cannot deal with via an IVA include maintenance arrears, child support arrears, student loans, magistrates’ court fines, social fund loans and TV licence arrears. Technically, you can include mortgage and rent debt, however, your lender has to give permission for this, which they are unlikely to do.
An IVA can only be for one person, meaning joint debts have to be handled differently.
Your lenders also have to agree to an IVA.
Should I get an IVA?
While an IVA can be a good tool if things have gone too far, the best thing you can do is avoid getting into a position where you need an IVA. An IVA is definitely not a quick fix and could seriously affect your ability to get a mortgage, loan or credit card in future and it may cost you a lot more in interest if you are offered credit.
An IVA is registered on the Insolvency Register and appears on your credit report for six years from when it was agreed, even if you pay back early (though it is marked as complete). However, an IVA can help you to avoid bankruptcy or bailiffs. If you are struggling with debt and feel an IVA is your only solution, seek help from one of the charities listed below.
One of the reasons behind why we created ilumoni is to help you pay back debt in a way that you can afford, costing you as little as possible. If you are considering how to deal with your debt, downloading ilumoni and connecting your bank accounts, credit cards and credit reports means we can help you to assess your debt and what you can afford objectively. ilumoni will highlight payment amounts you could afford and help you to pay back your debt. However, if we think you need more help, we will refer you to free services backed by charities to do this in the best possible way.
If an IVA is the right thing for you, it can help you to keep your home and mean that once it is completed, your debt is written off and you can no longer be asked to repay it.
However, it can also mean that you need to re-mortgage your home, usually at a higher interest rate, to release the equity. If you receive support for mortgage interest (SMI), this may stop and you may have to pay it back. If you can’t re-mortgage, you may need to pay your IVA for a further 12 payments. If you don’t keep up with your payments, you may be petitioned for bankruptcy. Plus any debts that cannot be included in an IVA still need to be repaid.
If you do not have stable, regular or spare income, or only owe one creditor, an IVA may not be the right thing for you.
What happens if I get an IVA?
When you set up an IVA, you will have an IVA supervisor from your insolvency practitioner and you will have limited control over your money for the period of the IVA.
That includes keeping to a budget and using any savings, bonuses or additional income to pay off your debts. You may even be required to sell or return valuable items and you will only be able to borrow up to £500 during an IVA, if you can get approval. It may also affect your pension.
If you are in certain jobs, such as being an accountant, lawyer or in financial services, your employment could be affected.
So it’s really important to know how this will affect you beforehand. Seek help from one of the charities below and they will help you figure it out.
What happens after an IVA?
After an IVA has completed, over time, your credit score will gradually improve and after six years your IVA is removed from your credit report, however, you will have limited credit history at this point, so any borrowing is likely to be offered at a higher interest rate and/or lower amount.
What happens if an IVA fails?
An IVA usually fails if you can’t keep up with the repayments and your creditors won’t agree to lower payments.
More often than not, in these circumstances you still owe your debts, including your insolvency practitioner’s fees, and your creditors may ask your insolvency practitioner to make you bankrupt or take action individually to make your bankrupt.
There may be other options available to you, such as a Debt Management Plan, however, this will depend upon your circumstances. One of the debt charities below will be able to advise you.
Are there alternatives to an IVA?
Absolutely. You may be able to set up a Debt Management Plan, get a Debt Relief Order or if you have no assets, file for bankruptcy. Seek help from one of the charities below and they will be able to advise you on what’s best for you.
For money worries, all of the following will help you for free:
AdviceUK www.adviceuk.org.uk 0300 777 0107
StepChange Debt Charity www.stepchange.org 0800 138 1111
Citizens Advice (England & Wales) www.citizensadvice.org.uk England: 08444 111 444 Wales: 08444 772020
Money Advice Scotland www.moneyadvicescotland.org.uk 0141 572 0237
Citizens Advice (Scotland) http://www.cas.org.uk 0131 550 1000
National Debtline www.nationaldebtline.co.uk 0808 808 4000
Citizens Advice (Northern Ireland) www.citizensadvice.co.uk
The Money Advice Service www.moneyadviceservice.org.uk 0800 138 7777
Mental Health helplines:
CALM www.thecalmzone.net 0800 58 58 58 (nationwide), 0808 802 58 58 (London) + webchat (5pm – midnight daily)
Shout www.giveusashout.org 85258 (24/7 text service)
The Mix (under 25s) www.themix.org.uk 0808 808 4994, text THEMIX to 85258 + webchat (4pm-11pm daily)
Other useful resources:
Mental Health and Money Advice www.mentalhealthandmoneyadvice.org
Mental Health Foundation www.mentalhealth.org.uk 020 7803 1101
Mind www.mind.org.uk 0300 123 3393