Individual Voluntary Arrangements (IVAs)

The aim of this guide is to provide you with an understanding of what an Individual Voluntary Agreement (IVA) is, and the circumstances when a person may be eligible to apply for one. The guide will also highlight some of the benefits and drawbacks of applying for an IVA, and the process of having one arranged.

What is an Individual Voluntary Agreement?

An Individual Voluntary Agreement (IVA) is a government scheme that aims to support and assist those who are struggling to manage their unsecured debts. The IVA acts as a debt management plan between you and your creditors to help reach a manageable resolution to the repayment of your debts. Your creditors are those who you owe money to.

The IVA serves to determine how much money you can afford to repay to creditors over a set period. The IVA enables debtors to repay their debts and ultimately avoid the difficulties and drawbacks of declaring bankruptcy when debts become overwhelming and unmanageable. IVAs are normally arranged over a five year period and during this time, interest and charges tend to be frozen on outstanding sums. Once the five years are over, any money that has not been repaid is written off.

With this in mind, the majority of IVAs lead to debtors repaying substantially less over five years than the total outstanding debt amount. The arrangement will be based on affordability, and so the IVA is organised to ensure manageability based on your present circumstances. The IVA will be arranged by an insolvency manager, who will liaise between you and your creditors and offer you tailored advice to help set up and manage your IVA.

Am I eligible for an IVA?

In order to qualify for an IVA, you must meet certain criteria. To be offered an IVA, you must:

• Owe more than £15,000 between at least two different creditors
• The debts owed are unsecured such as credit cards or personal loans (an IVA can still be arranged if you have a mortgage or secured debts, but these will not be covered by the IVA agreement)
• You owe money to at least two creditors (two debts with one creditor will only be considered as one debt)
• You are having difficulty in managing repayments on your debts
• You are a resident of England, Northern Ireland or Wales. For those living in Scotland, a Protected Trust Deed is the equivalent of an IVA.

What are the benefits of an IVA?

There are a number of benefits to taking out an IVA in the event of being unable to manage your debts, not least the peace of mind of knowing that payment of what is owed is underway and that your creditors will not continue to add interest and charges whilst you settle what is owed. Additional benefits to taking out an IVA include:

• The ability to keep certain important assets such as a house and car, which might otherwise be taken if you were to declare bankruptcy
• Less stigma than declaring bankruptcy with less severe implications to your credit score
• IVAs are not publically announced, unlike a bankruptcy
• Business owners are allowed to continue to trade if they have an IVA
• The IVA is usually limited to 5 years, meaning that the debts are written off after 5 years, irrespective of whether there is an outstanding amount.
• The IVA acknowledges your financial circumstances meaning that your repayments will be affordable and manageable. This usually reduces the total amount that you owe over the IVA term.
• IVAs prevent further legal action being taken by creditors, minimising the risk of court action.

What are the drawbacks of an IVA?

There are also a number of drawbacks of taking out an IVA, and these should be thoroughly considered before setting up an agreement. Some drawbacks of the arrangement include:

• There will be a negative impact on your credit rating
• Only those with a lump sum or salary are eligible to take out an IVA
• If you are unable to pay your IVA as per the agreement, you can still become bankrupt
• If you have a change of circumstances and your creditors will not agree to having new terms, your IVA will come to an end, and this can leave you in another position of struggling.
• You may be required to remortgage your property or apply for a second mortgage in order to release equity to repay creditors.

You will need to balance the negatives and positives of taking out an IVA in order to determine whether the arrangement is suitable for your specific needs. An insolvency adviser will offer impartial advice to assist you in making this decision.

How do I arrange an IVA?

It is not possible to arrange an IVA on your own, and you will need the assistance of an insolvency adviser or insolvency practitioner to establish the arrangement. The specialist will assess your debt and personal circumstances to determine your eligibility and to confirm whether an IVA is the most suitable option for your needs.

If the advisor decides that an IVA is the best course of action for your circumstances, they will help you complete the application and gather the required information and evidence. Based on this information, the advisor will submit an IVA proposal to the creditors and arrange a creditor meeting. The creditors will then be able to accept or decline the proposal, and the IVA will only be approved if the creditors that hold a minimum of 75% of your debt vote in agreement with the proposal.

What happens once the IVA has ended?

Once you have completed the payments on your IVA, normally following a five year period, your insolvency adviser will forward a Certificate of Completion to you and the Insolvency Service in order for them to update their records.

It is advisable to forward copies of the certificate to credit reference agencies in order for your credit file to be updated accurately and reflect that the IVA was completed successfully.