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What's an Individual Voluntary Agreement (IVA)?

What is an IVA?

In short, an Individual Voluntary Agreement – commonly known as an IVA – is a legally binding arrangement between you and your unsecured creditors. You agree to a single consolidated affordable monthly repayment typically of at least £90.00 a month over a period of time —usually five years. After that, any unsecured debts you haven’t been able to repay are written off.

Before we go in to the in’s and out’s of an IVA in further detail, let’s clarify the difference between secured and unsecured debt first.

What are Secured and Unsecured Debts?

Secured Debts – Secured debts are so-called because they’re secured against something. For example, when you take a mortgage out, your mortgage lender has security against the value of your home. So, if you default on a repayment, your creditor is within their legal rights to come after the asset – your home – that your loan is secured against. So, what usually happens is your creditor starts proceedings to repossess your property if you can’t maintain your mortgage repayments.

Unsecured Debt – Once you’re clear about secured debt, unsecured debt is relatively simple to understand. When you take out credit lines such as credit cards and catalogues your creditors don’t have any security. They offer you credit based on your assumed creditworthiness. Unsecured debt – credit card debt in particular – is the unsecured debt type that can get out of control. But your creditors can’t try to recoup the things you’ve bought like they can when you have secured debt. Instead, they take other courses of action to recoup the money they’ve lent you, such as –

  • Court Action – Your creditors can take you to court to request the ‘docking’ of an amount directly from your salary or wages to ensure they get repayments from you.
  • Credit Rating – You’ll get a black mark as a bad debtor against your credit rating, which will affect your ability to access credit in the future.
  • Debt Collection – Your creditors can pass your debts on to debt collections agencies who will visit you at your home.

What Should You Expect When You Apply for an Individual Voluntary Agreement (IVA)?

First off, you don’t have to enter in to negotiations with all your creditors to agree monthly payments with them individually.

An Insolvency Practitioner (see further details below) will work with you to consolidate a single monthly repayment plan that’s manageable for you, usually from £90.00 per month upwards, depending on your level of debt and affordability.

Your Insolvency Practitioner will then arrange the allocation of funds between your creditors (more on that later, too).

Your Insolvency Practitioner will discuss all aspects of your Individual Voluntary Agreement with you in detail.

In a nutshell, here’s some basic facts and figures to give you an initial understanding about how IVA’s started and how they work in practice –

  • The IVA became part of English law when the 1986 Insolvency Act was passed in Parliament.
  • The concept of the IVA was to create a new debt solution as an alternative to bankruptcy. It was intended to give people with unmanageable amounts of debt the opportunity to protect their assets, e.g. they wouldn’t automatically lose their home, which was the expected outcome if they were declared bankrupt.
  • An IVA legally binds you to paying your creditors back what you owe them, in full or in part, as per the specific terms of your pre-agreed monthly repayments.
  • Your level of debt and your ability to repay it are taken in to account when your Insolvency Practitioner compiles your IVA proposal.
  • Your creditors will stop trying to take any further action against you once your IVA starts.

Do I Qualify?

Typically, you’ll need a minimum debt level of £6,000 of unsecured debt with at least two lenders to potentially qualify for an Individual Voluntary Agreement. Your debt might be across a number of credit cards, loans, catalogues, store cards, etc.

You must be able to prove you’re struggling with your current repayments in order to be considered for IVA payments.

Should you decide to apply for an IVA, bear in mind that –

  • You might not be automatically eligible. IVA’s can be most suitable if you have a regular ongoing income stream and/or a lump sum of money to put towards your debt repayment.
  • Your IVA will be approved if the creditors you owe 75% of your debt to are in agreement. If they agree, your IVA will then be applied across all your credit lines, whether other creditors you owe less money to are in favour or not. However, if more than 75% of your creditors reject the IVA your application will be rejected.

Use our quick and easy debt tool here.  Whether an IVA is the best way for you to proceed or not.

What Types of Debts Can Be Repaid with an Individual Voluntary Agreement (IVA)?

  • Catalogues
  • Council Tax
  • Credit Cards and Store Cards
  • Hire Purchase (providing you no longer have the goods)
  • Overdrafts from Banks and Building Societies
  • Personal Loans and Payday Loans
  • Tax Arrears including National Insurance and PAYE

What Types of Debts Can’t Be Repaid with an Individual Voluntary Agreement UK?

  • Car Finance (some can, some can’t, your Insolvency Practitioner will advise to suit your specifics)
  • Child Support Arrears
  • Crisis or Social Fund Loan Repayments
  • Fines issued by a Court
  • Mortgages (see below)
  • Student Loans
  • Television Licence Arrears

What Are the Implications of An IVA If You’re a Homeowner?

On one hand, an IVA provides the protection bankruptcy doesn’t, by ring-fencing your home if you’ve got a mortgage.

On the other hand, you might be -expected to take out a re-mortgage to generate a lump sum to go towards paying off your debts. This might not seem like a desirable outcome. But you won’t necessarily be forced to sell up.

There are several factors to get to grips with as a homeowner applying for an IVA –

  • Property Value – It’s common practice to get your property valued to see if there’s a meaningful amount of equity release available. (Equity is the lump sum you’d get if you sold your house, minus your any secured loans against it, e.g. your mortgage and legal fees.)
  • Obligatory Re-Mortgaging – If a valuation shows that the sale of your house would generate £5,000+, you might be obligated to take out a re-mortgage. Your equity release would then be contributed to paying down your debts.
  • Equity Release Contribution Cap – There’s usually a cap on how much equity release is used for IVA payments. It isn’t a fixed sum. A cap is calculated on the size of the mortgage you originally borrowed and what the current value of your property is.
  • Equity Release Exemption – It’s a rare occurrence. But there are certain exceptional cases where creditors might agree to an IVA without you having to re-mortgage your property. It doesn’t happen often. Your Insolvency Practitioner will discuss any likelihood with you before approaching your creditors.

How Does an Individual Voluntary Agreement Work in Practice?

An IVA might sound like a complex process. The maths is actually quite simple and straightforward –

  • Payment Calculation – Your income and expenditure will be assessed to calculate your monthly surplus income. This will be your IVA payment.
  • Insolvency Practitioner – To propose an IVA to your creditors you’ll need to instruct/engage a licenced Insolvency Practitioner (IP).
  • Single Monthly Consolidated Payment – Rather than paying your creditors directly, you’ll make one reduced, affordable monthly payment to cover all your included unsecured debts. This will be created and managed by your Insolvency Practitioner.
  • Payment Allocation – Your appointed Insolvency Practitioner will allocate your monthly repayments amongst your creditors, giving you the peace of mind and reassurance that you’re on the path towards becoming debt free. Your Insolvency Practitioner’s admin fees will be included in your monthly repayment plan.
  • Review – You’ll have regular reviews at least once a year to ensure you’re finding your IVA payment affordable.

Our direct Insolvency Practitioner for the Debt Resolution Service Limited is Jason Bowen, who is licenced to act in the UK by the Institute of Chartered Accountants of Scotland – Licence no. 22150.  When you come to us in need of debt solutions, any specific IVA advice we provide will be given in anticipation of the appointment of Jason Bowen as your Insolvency Practitioner.  If for whatever reason Jason Bowen is unable to take the anticipated appointment, then your details may be referred to a suitable alternative Insolvency Practitioner to avoid any process delays or detriment.

How Does a Protected Trust Deed Work If You Live in Scotland?

There isn’t a great deal of difference between getting an IVA in England, Northern Ireland and Wales or getting a Protected Trust Deed in Scotland.

With an IVA, your assets – anything that can be converted in to cash – become the responsibility of your Insolvency Practitioner. At this point, you become shielded against any further pursuit or potential threats of legal action by your creditors.

The key difference with a Protected Deed Trust is your Insolvency Practitioner must make separate application to protect your assets.

It’s a technicality that otherwise follows much the same process and outcomes, such as –

  • A freeze on any further charges and interest being applied by your creditors.
  • Your creditors will stop pursuing you for repayments directy.
  • A writing off of any debts that are still remaining when the terms of your agreement expire.

Read our entire section about Protected Trust Deeds here.

There’s a lot of information about IVA’s here for you to take in.

In addition to the volume of details, one cap doesn’t fit all.

We’ve pulled the key benefits and considerations together for you in at-a-glance table for quick and clear reference –

Benefits of an IVA
Things to Consider
An IVA consolidates all your debts to different creditors in to one affordable monthly blanket payment. Approval from unsecured creditors you owe at least 75% of your unsecured debts to is required.
All interest and charges are frozen when an IVA is created. An IVA will stay on your credit report for 6 years, affecting your credit rating and your potential ability to obtain future lines of credit.
All contact between you and your creditors will cease and be handled by your Insolvency Practitioner moving forwards. An IVA is a legally binding contract with limited flexibility.
When your IVA is in place, you’ll receive full legal protection from any further creditor action. If your financial situation improves you might be required to increase your payments in line with your income.
The fixed term of an IVA is usually 5 years. Any remaining debt will be written off after this time. If you earn substantial overtime or bonuses. you might be required to pay a portion into your IVA to uphold repayments aligned to your income levels.
If your situation worsens, your IVA might be altered to reflect any changes of circumstance. If you are a homeowner, you might be required to release equity by re-mortgaging your property, or extend your IVA for 1 year in lieu of equity release.

No one should have to deal with financial troubles alone. Whether you’re looking to resolve your financial struggle once and for all or just want to ease the burden by talking things through, we can offer you information and assistance on how best to proceed. Get in touch today to take the first step towards a better financial future.

Additional Things You Need to Know About

  • Accountability – You can’t get new credit for £500 or more once you enter in to an IVA without obtaining authorisation from your Insolvency Practitioner first. Some things, such as gas, electric and water are exempt from this rule. Your Insolvency Practitioner will talk you through your options should the need arise.
  • Duration – IVA’s typically last for a duration of 5 to 6 years.
  • Maintenance – You should do everything within your power to keep up to date with your IVA repayments. If you fail to do so, your creditors might take steps to force you in to bankruptcy.
  • Transparency – It’s crucial you’re 100% open and honest about providing your Insolvency Practitioner with full details about your assets, creditors, expenditure and income. Any attempts to hide important information might have adverse consequences further down the line.
  • Visibility – Your details will automatically appear in the Individual Insolvency Register. This is a public record of bankruptcies, IVA’s and other forms of debt relief. It includes names, addresses and occupations for all listings. The Register can be searched by credit reference agencies, employers, landlords and lenders, which might create adverse impact if you’re applying for jobs or hoping to move home. Your details will appear in the Register throughout the duration of your IVA and be removed 3 months after expiry.
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No one should have to deal with financial troubles alone. Whether you’re looking to resolve your financial struggle once and for all or just want to ease the burden by talking things through, we can offer you information and assistance on how best to proceed. Get in touch today to take the first step towards a better financial future. See if you qualify.