You may have already heard about the IVA debt solution. But what will it actually mean for you? It can have both positive and negative implications depending on your financial situation, objectives and goals.
In this article, we examine what an IVA is and how it will affect you. You can then decide whether it best meets your needs.
We are here to offer clarity and direction on your path to becoming debt free. Our many years of experience allow us to advise you on whether an IVA is the best fit for your circumstances.
An IVA is an agreement to settle the unsecured debt you are struggling to repay. The settlement amount is often based on affordable monthly payments paid over 5-6 years. However, in some circumstances, it could be paid with a single lump sum. Once the agreed payments have been made, any outstanding debt is written off.
The agreement is legally binding on your creditors. This means once it is in place, they have to stick to it. They can no longer take legal action against you to enforce payment of their debt. In addition, all interest and late payment charges must be stopped.
A significant advantage of an IVA over Bankruptcy is that you can normally keep major assets such as your home or car.
How Does An IVA Work?
There are a number of steps involved in setting up and managing an IVA:
First a review of your financial situation has to be carried out. Most importantly you will have to complete an monthly income and expenses budget. Your total expenses are deducted from your total income to establish how much surplus income you have. Your surplus income is the amount you will be expected to pay into your IVA.
In addition to your income and expenses, you will also need to provide details of assets such as your property (if you are a home owner) and your car.
If you are thinking of starting an IVA, contact Bankruptcy Guide today. We will assist you with your financial review and establish what you can afford to pay each month.
All of your financial circumstances are summarised in one document known as your IVA proposal. Your income and expenses budget, details about your assets and a list of your debts are all included. The amount you are proposing to pay back during the Arrangement is also shown.
Your proposal document must be drafted by a special type of accountant known as an Insolvency Practitioner (IP). They are specially licensed to get your IVA in place and manage it once agreed.
Once your IVA proposal has been drafted, you have to sign it to confirm that you are happy for it to be sent to your creditors.
Your signed IVA proposal is forwarded to each of the debts you have listed (known as your creditors). They are usually given around 10 days to consider the offer. At the end of this time each will decide whether they want to accept your IVA or not. As long as at least 75% of the value of the creditors (who respond) agree to the proposal, it is agreed and becomes legally binding on them all.
Some creditors might require additional conditions to be added to the agreement before they agree. These might include things like extending the length of the Arrangement (ie making it 6 years rather than 5). Alternatively, asking for higher monthly payments if they feel you can afford to pay more.
Once your IVA is legally binding, you then have to start paying it. Normally this will involve you making the agreed monthly payment.
You pay your monthly payment as a single amount to the Insolvency Practitioner. They then divide the money among creditors in accordance with the terms.
An annual review of your circumstances will be undertaken each year. If your income has increased (or expenses significantly decreased) you may be asked to increase the monthly payment that you make until the end of the Arrangement.
Once you have made all your payments in accordance to the terms in your IVA, it will be completed. At this point any debt you owe which remains outstanding is written off. You will be issued with a completion statement confirming that your IVA has successfully ended and you are no longer bound by its terms and are debt free.
Frequently Asked Questions About IVA's
A monthly payment IVA commonly lasts five or six years (although it could be longer). The length is agreed at the Creditor Meeting stage (as highlighted above).
The length of your IVA could be extended part way through if you miss payments or it is agreed that you can reduce the monthly amount you pay.
It is not easy to get a mortgage during an IVA. It is only an option if you are already a home owner and agree to raise sufficient funds to pay off your IVA as part of a re-mortgaging deal.
If you are a first time buyer, it is very unlikely that you will be able to get a mortgage until your IVA has been completed.
Regardless of how long it lasts, the record of your IVA will remain on your credit file for six years after the start date. It is then automatically deleted.
Your credit rating will normally not start to improve until the record has been deleted from your file.
It is not possible to reduce the length of time that the record of your IVA stays on your credit file. Even if you settle the Arrangement early or cancel it, the record will still remain on your file for the full 6 years.
It is possible for you to get car finance during an IVA. However, you will not be able to use a mainstream lender. This is because you will fail their credit check.
Specialist car finance companies do exist who will consider you. However, you should be aware that they will charge a much higher rate of interest.
You will normally need your IVA company to agree to letting you take on a new car finance agreement during your Arrangement.
Yes, you can pay an IVA off early with a lump sum cash payment. The lump sum required must come from a third party (normally a family member or friend).
Yes. You can cancel your IVA at any time during the Arrangement and go bankrupt instead. You may feel that you can no longer afford to pay your IVA or that you made the wrong decision starting it
Generally speaking this is only an option if you are not a home owner (or you do own a home but there is no equity in it). You will also need to take into account other factors such as what might happen to your car and whether you will still be required to make any ongoing payments towards your debt.
If you are thinking about cancelling your IVA and going bankrupt, speak us today. We can advise you whether this is the best option and offer assistance with the process.
Yes, self-employed individuals can start an IVA. However, you should use a specialist IVA company who understands your circumstances and how to put together a self employed IVA proposal.
Self employed and want to start an IVA? Give us a call today. We can advise whether this is the best debt solution for you and help you implement the agreement.
You will not normally have to mention that you were previously in an IVA once it has completed and the record is no longer on your credit file.
However, if you are specifically asked whether you ever had an IVA (for example on a mortgage application), you are still advised to disclose it.
This is regardless of whether or not the record has already come off your credit file.
If you have questions that have not been answered here, check out our other IVA guides:
Choosing the right debt solution will have a big impact on your life. Before making any decisions, make sure you contact Bankruptcy Guide for expert, professional and confidential advice. All information, advice and assistance is provided by James Falla. James has over 20 years of experience advising on and implementing debt solutions such as IVA and Bankruptcy.