An IVA allows you to settle your unsecured debts. You pay back what you can afford. The debt you are unable to pay is written off.
Jump to article content:
- What is an IVA
- How long does the Arrangement Last
- How will an IVA affect you
- Is this debt solution right for you
What is an IVA
An IVA (Individual Voluntary Arrangement) is a personal debt solution. It involves making reduced payments towards your debt for 5-6 years.
Debt left outstanding at the end of the Arrangement is written off. The amount written off is not fixed. It depends on your circumstances and what you can afford to repay. However it is possible to write off 75% or more.
The Arrangement is formal. Once in place it gives legal protection for you and your property.
An IVA is only available if you are living in England, Wales or Northern Ireland. If you live in Scotland you will need to choose one of the debt solutions available to you locally.
Only unsecured debts can be included. These are things like a personal loan, credit card, and catalogue debts. Secured debts such as a mortgage and HP agreements cannot be included.
How long does an IVA last
A standard monthly payment IVA will last for 5 years. If you are a home owner this period could be extended for a further 12 months where there is equity in your property which you are unable to release.
Your creditors can demand that the length of the Arrangement be extended before they accept it. However this is rare. More commonly the term may be extended during the agreement to compensate if your payments are reduced for any reason.
It is possible to settle an IVA early by paying a lump sum. This could happen if you are made redundant and receive a redundancy payment. Alternative the lump sum could come from a third party.
If you cannot afford monthly payments you could still apply for a lump sum IVA. The arrangement is based on paying a single lump sum. You may only be required to pay 10% of your total debt.
How an IVA will affect you
If you start an IVA one of the key things to understand is you will have to pay as much as you can afford towards your debts. This will involve living within a restricted living expenses budget.
You will be allowed sufficient money to maintain your priority payments and other reasonable household expenses. However any surplus income you have will have to be paid into the arrangement.
Your credit rating is negatively affected. A record of the IVA will remain on your Credit File for 6 years. This will make it difficult for you to get new credit facilities a mortgage and other financial services.
If you are a home owner your property is protected from charging orders. However you will be expected to release equity if you can during the Arrangement to increase the amount of your debt you repay.
Is an IVA right for you
There are different factors which determine whether an IVA is suitable for you. One of these is the amount of debt you owe. Generally speaking you can consider an IVA if you owe £9000 or more.
In addition the amount you are able to repay towards your debts each month will need to be at least £100. The exceptions to this are if you can offer a lump sum or your disposable income is likely to increase.
It is important to be confident you can sustain your payments. If you are unable to do this the Arrangement could fail. As a result you could lose the money already paid in.
If you are renting your home and have no other assets of particular value there may be cheaper debt solutions available that you should also consider. These include a Debt Relief Order and Bankruptcy.
Government advice about Dealing with Debt
As well as the information found on this website the Government’s Insolvency Service has produced a useful guide to personal debt solutions which you might also find useful: “Options for paying off your debts”.
The Money Advice Service (MAS) are an independent service set up by the Government to provide people with free advice about all aspects of personal finances. For help from MAS if you are struggling with debt please follow this link: MAS – Help if you are struggling with debt.
It is also recommended that you read this one page document produced by MAS entitled “Dealing with debt – 5 things you should know”.