Are you struggling with overwhelming debt and searching for a way to regain financial stability? An Individual Voluntary Arrangement (IVA) might be the solution you’re looking for. But now you may be wondering whether is an IVA truly worth it. Before you make a decision, it’s crucial to understand the benefits and drawbacks of this debt management option.
In this article, we’ll explore the ins and outs of IVAs, helping you determine if it’s the right path for your financial future.
So, without further ado, let’s read on to find out if an IVA could be the key to reclaiming control over your finances.
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What Is an IVA?
An Individual Voluntary Arrangement (IVA) is a formal agreement between you and your creditors to pay off your debts over a set period of time. It’s a legally binding contract designed to help people manage and reduce their debt in a structured way. Typically lasting five years, an IVA allows you to make affordable monthly payments based on your income and expenses.
Once the IVA period is complete, any remaining debt is usually written off.
Additionally, keep in mind that IVAs are set up by insolvency practitioners and must be approved by creditors who are holding at least 75% of your debt value.
How Does an IVA Debt Solution Work?
An Individual Voluntary Arrangement (IVA) works by providing a structured way for individuals to manage their debt.
Here’s how it typically works:
We have already created a dedicated article explaining everything about the IVA program. Please refer to our comprehensive article on IVA to gain a more detailed understanding.
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What Cannot Be Included in an IVA?
An Individual Voluntary Arrangement (IVA) is a formal debt solution used to manage and pay off unsecured debts, such as credit cards, personal loans, and other forms of unsecured borrowing.
However, there are specific types of debts that cannot be included in an IVA. These are:
If you have any of the above types of debts, you’ll need to address them separately, often through direct negotiation with the creditors or through other debt solutions.
Get an IVA via an Insolvency Practitioner(IP)
You need to get the service of a licensed professional known as an Insolvency Practitioner(IP) in order to get approval for the IVA. It’s the only way. They will evaluate you and your financial situation to create an IVA proposal during your IVA application.
Here’s a closer look at the roles they play:
Additionally, these IP agents will charge a fee for setting up the IVA and will also take a fee from your ongoing monthly repayments.
Step-by-Step Process of Getting an IVA
Starting an IVA involves several steps and usually takes about six weeks to conclude discussions and initiate. Here’s a closer look at the typical process:
Keep in mind that while an IVA can be a way to manage debt, it will negatively affect your credit rating. It will stay on your credit file for six years from the date it starts. Thus making it harder to obtain credit during this time.
Additionally, It’s crucial to adhere strictly to the terms of the IVA. Failure to make payments or comply with the agreement could lead to serious consequences, including bankruptcy.
Remember, an IVA is a serious financial commitment and should be considered carefully. Always seek professional advice to explore all available options and ensure it’s the right solution for your circumstances.
What Expenses Are Allowed in an IVA?
Allowable expenses typically refer to necessary living expenses that are considered when determining the amount of disposable income available to repay creditors.
These expenses can vary depending on your individual circumstances and the terms of the IVA. However, here are some common allowable expenses may include:
Additionally, there may be limits on the amount of certain expenses that can be claimed. For some large expenses, you may have to take approval from your insolvency practitioner as well.
Therefore, it’s advisable to consult with a financial advisor or insolvency practitioner for guidance tailored to your situation.
How Long Does an IVA Last?
An IVA is generally set for five years. However, it can change for a longer or shorter period, depending on the applicant’s financial situation and choices. This period allows most individuals to make a significant dent in their debts while restructuring their financial habits.
Life isn’t always predictable. Here’s how the IVA period can be extended or shortened:
- Extensions: The IVA can extend for another year if you can’t meet the agreed terms or if you have assets like a home with equity.
- Early Completion: Sometimes, if you come into some money—like an inheritance—you might be able to settle your IVA early.
Each IVA is tailored to individual circumstances. However, the typical timeframe is five years. What happens at the end of these five years?
What Happens After 5 Years of an IVA?
After five years of an Individual Voluntary Arrangement (IVA), the outcome differs based on homeownership status:
These outcomes are based on the specific conditions outlined in the IVA agreement and should be discussed with an insolvency practitioner or financial advisor to determine the best course of action for each individual’s financial situation.
Can IVA Be Extended to 7 Years?
Yes, the Insolvency Act 1986 allows for the extension of an IVA for up to seven years. However, it is extremely uncommon to encounter a seven-year IVA.
How Many IVA Payments Can I Miss?
You can typically miss up to three monthly payments within a 12-month period before your IVA is at risk of failing in general. However, this can vary according to the individual’s agreement terms.
Therefore, it’s essential to confirm the specific consequences with your Insolvency Practitioner based on your agreement.
Additionally, keep in mind that failure of the IVA could lead creditors to pursue bankruptcy proceedings against you.
What Happens to My IVA If I Earn More Money?
If your income increases during the term of your IVA, your Insolvency Practitioner may conduct a review to reassess your ability to make payments. Depending on the terms of your agreement, the additional income may result in an increase in your monthly payments towards the IVA.
Alternatively, it could lead to a proposal to creditors for a higher repayment amount. It’s important to inform your Insolvency Practitioner promptly about any changes in your financial circumstances to ensure that your IVA remains manageable and compliant.
What Are the Pros and Cons of IVA?
here are some pros and cons of an Individual Voluntary Arrangement (IVA):
It’s essential to carefully consider these factors and seek professional advice before deciding if an IVA is the right debt solution for your circumstances.
How Much Does an IVA Cost?
The cost of an IVA varies but is typically included in your monthly payments.
These fees cover:
- Nominee Fee: This is for setting up the IVA.
- Supervisor Fee: For managing the IVA throughout its term.
The fees you’ll pay depend on your creditors, how much you contribute each month, and any other expenses you have during your IVA. Understanding these fees upfront can help you manage your budget more effectively.
Can I Go on Holiday With an IVA?
Yes, taking a holiday during an IVA is possible, but with caution. If you manage your budget smartly, a modest vacation that doesn’t compromise your IVA payments can be within reach. Here, the key is to ensure that holiday spending does not interfere with your ongoing financial commitments under the IVA.
Remember, the primary goal is to maintain regular payments, so any additional expenditure should be carefully weighed.
Can I Keep My Car on an IVA?
In most cases, you can keep your car when you are in an IVA, provided it’s essential for your daily needs, such as commuting to work or transporting family members.
However, if your vehicle is particularly high in value, you might need to swap it for a less expensive model.
The rationale here is straightforward: It is to maintain essential transport without holding assets that could be seen as luxury items.
Will My Job Be Affected by an IVA?
For most professions, having an IVA will not impact your employment. However, if you’re working in sectors such as finance or law, there may be restrictions or disclosure requirements related to financial solvency and handling of financial agreements.
Therefore, It’s important to check any specific professional guidelines or speak to HR about your situation if you believe it could be an issue.
How Badly Does an IVA Affect Credit Rating?
An IVA will have a significant negative impact on your credit rating throughout its duration and for a year following its completion. This is because entering into an IVA indicates to creditors that you have previously struggled to manage your debts.
As a result, obtaining new credit will be more challenging, and any available credit will likely come at a higher cost.
How Long Does an IVA Last on Your Credit Report?
An IVA will appear on your credit report for six years from the date it starts. This period covers the typical duration of the IVA plus an additional year, impacting your ability to secure new credit or favourable rates during this time.
Do I Have to Declare an IVA After 6 Years?
Once your IVA is no longer on your credit report, it doesn’t just disappear from your financial history.
Sometimes, prospective lenders might ask if you’ve ever been in an IVA, particularly for significant financial applications like mortgages. Transparency is crucial, as failing to disclose this information when asked can have serious implications.
While you’re waiting, you can work on boosting your credit score after finishing your IVA. This shows potential lenders that you’re actively improving your financial habits:
Can I Still Get Credit With an IVA?
Obtaining credit during an IVA is difficult but not impossible. You are likely to face higher interest rates due to the perceived increased risk. Creditors may offer limited credit under stricter conditions.
Therefore, it’s essential to discuss any borrowing with your IP since unauthorised credit could breach the terms of your IVA.
Is an IVA Worth It?
Whether an IVA is worth it depends on your specific financial situation. It offers a structured path out of significant debt and stops creditors from taking further action. Yet, it requires a firm commitment and impacts your financial freedom and credit rating.
Is an IVA worth it for you? This question can often be answered by reviewing your long-term financial goals and current financial distress. However, everyone’s situation varies, so it’s wise to explore other debt solutions in addition to an IVA.
Can You Exit an IVA Early?
Yes, it’s possible to exit an IVA early if you come up with some lump sum money, such as through an inheritance or other windfalls. Making a lump sum payment could settle your debts sooner than expected, allowing you to conclude the IVA ahead of schedule.
What Happens If I Want to Cancel My IVA?
Cancelling an IVA can lead to severe consequences, including the possibility of bankruptcy.
If you find yourself unable to meet the payments or your financial situation worsens, it is crucial to speak to your IP immediately. They can explore options such as adjusting your payment plan or, in more severe cases, considering other forms of insolvency.
Is Getting an IVA a Good Idea?
Yes. For many, an IVA can be a viable route to regaining financial stability, providing a means to manage substantial debt that cannot be cleared in the short term. Therefore, it’s essential to explore all available debt solutions before deciding, as each option comes with different implications for your financial future.
However, it’s crucial to keep in mind that each of these debt solutions has specific eligibility criteria. Selecting the right one can lead to debt resolution, while choosing the wrong one could worsen your financial circumstances.
Hence, seeking guidance from a professional debt advisor is a prudent step to take if you find it challenging to determine the most suitable debt solution on your own.
If you need personalised assistance based on your current financial situation, please feel free to complete our online form by clicking here to receive help from our Money Advisor Team.
Seek Free Financial Advice
There are a number of debt charity organisations that you could use to get professional debt and financial advice free of charge. Their advisors will inquire deeply about your debt issue and will help you in finding a reliable solution to overcome it.
Below is a list of charity debt organisations where you could get free debt help:
Key points
- An IVA is a formal, legally binding agreement between an individual and their creditors to pay back debts over a set period, typically five years. It aims to help individuals facing significant debt by providing a structured repayment plan.
- IPs play a critical role as advisors, negotiators, and managers of the IVA. They assess the debtor’s financial situation, negotiate with creditors, and manage the distribution of payments.
- Essential living costs such as housing, utilities, groceries, and transport are considered in the IVA to ensure the monthly payments are sustainable.
- An IVA usually lasts for five years, but it can be extended under certain conditions, such as the inability to meet agreed terms or the need to release equity from a property.
- Entering into an IVA significantly affects one’s credit rating during the IVA and for a year after its completion. It remains on the credit report for six years from the start date.
- It’s possible to exit an IVA early by making a lump sum payment, often from an unexpected financial gain like an inheritance.
- Missing more than three payments without reaching an agreement for relief can lead to the failure of the IVA, potentially leading to bankruptcy.
- During an IVA, luxury expenditures are prohibited, and spending is restricted to necessary expenses to ensure all disposable income goes towards repaying debts.
- IVAs are recorded on a public insolvency register, which can affect personal and professional relationships and future borrowing capabilities.
- It’s essential for individuals considering an IVA to explore all other debt solutions and seek tailored advice from debt advisors to ensure it is the right solution for their specific financial situation.
FAQs
If your financial situation improves during the course of an IVA, such as receiving a significant salary increase, you must inform your Insolvency Practitioner (IP). The IP may adjust your monthly payments upwards to reflect your new income, potentially shortening the duration of the IVA.
Yes, you can own property during an IVA. However, if you have equity in your home, you may be required to release some of this equity in the final year of the IVA to repay your creditors. This might involve remortgaging or securing additional lending.
Alternatives to an IVA include Debt Management Plans (DMPs), Debt Relief Orders (DROs), and bankruptcy. Each has different qualifications and implications for your financial situation. Consulting with a debt advisor can help determine the best option based on your specific circumstances.
If you’re unable to keep up with your IVA payments, it’s crucial to contact your IP immediately. You might be able to arrange a payment holiday or adjust your payment plan. Ignoring the issue could lead to the failure of your IVA, which might result in your creditors seeking bankruptcy proceedings against you.
An IVA will impact your credit rating for six years from the start date, which can make obtaining new credit difficult and more expensive. However, completing an IVA successfully can be a step towards rebuilding your financial stability and improving your financial management skills.
