Before starting an IVA you must decide whether it is right. This will largely depend on your financial circumstances. Before making your decision there are a number of things you will need to consider.
- How much debt do you owe
- What will your IVA payments be?
- The effects of an IVA if you are a home owner
- How will an IVA affect you personally
How much debt do you owe?
Only unsecured debt can be included in an IVA. This includes debts owed to HMRC such as tax and VAT arrears. CCJs and debts were an Attachment of Earnings is already in place can also be added.
As a general rule the IVA solution is only suitable if you owe unsecured debt of at least £9000. There is no upper limit to the level of debt that can be included.
Secured debt such as a mortgage or car HP cannot be written off in the Arrangement. You must continue to pay these. The payments must be included in your agreed living expenses budget.
An Individual Voluntary Arrangement (IVA) is only available for people who live in England, Wales or Northern Ireland. Scottish residents will need to consider the local debt solution options available to them locally.
If you have recently moved abroad but still owe debt in the UK you may still qualify for an IVA. However if you have now lived abroad for more than 3 years you will no longer qualify.
What will your IVA payments be?
The payment you make into an IVA is based on your disposable income. This is the amount of money you have remaining after all of your living expenses have been deducted from your income.
Your creditors will expect you to live within a reasonable living expenses budget when calculating your disposable income. This ensures that you always repay them as much as you can possibly afford.
You are always obliged to repay as much of your debt as you can during the Arrangement. Once agreed your payments are not fixed. If your financial circumstances improve they are likely to increase.
If you cannot afford monthly payments towards your debts you could still use the IVA solution. This would be possible if you or a third party can make a single lump sum payment available.
Are you a home owner?
An IVA gives legal protection for both you and your home. Once in place your creditors are no longer allowed to secure their debt against your property with a Charging Order.
However as a home owner you will be required to release equity from your property if you are able to. Given this if you do not want to release equity out of your home to repay your debt an IVA might not be suitable for you.
You must continue to pay your mortgage and other debts secured against your home during your IVA. If you do not then your property could be repossessed.
You can also use the IVA solution if you rent your home. However given you have no property to protect you should also consider bankruptcy which could be a cheaper option for you overall.
How will an IVA affect you personally?
An IVA is largely a private agreement between you and your creditors. No one else is told. As such it is very unlikely that anyone other than your creditors will find out unless you tell them.
A record that you are in an IVA is recorded on a public register. This can available via the internet. It is possible for anyone to search for your name on this register.
You are allowed to keep all of your personally belongings unless they are extremely valuable. If you own a car this will not normally be at risk unless it is unreasonably expensive to run.
A record of the Arrangement will be recorded on your credit file. This will negatively affect your credit rating. It will make it difficult to get all forms of credit for the duration of the agreement.
Most jobs are unaffected by an IVA. Your employer will not be told. It is a solution which is commonly used by people who are self employed and or company directors.