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Tag: IVA disadvantages

How To Apply For An IVA

An IVA is a debt management solution that can allow you to make affordable payments over a fixed period, typically 5 or 6 years. At the end of your IVA, the outstanding balances are written off and you will be debt free. This page will give you an overview of what an IVA is, how it works, and how you can apply for one.

What is an IVA?

An IVA (Individual Voluntary Arrangement) is a legal agreement between you and your creditors. It’s a way of paying back some or all of what you owe over a fixed period, usually 5 years. You pay back a certain percentage of your debt in monthly instalments. Your creditors then write off the rest at the end of the agreed period.

Once your IVA is in place, your creditors can’t take any further action to recover money from you, so you are protected against bailiffs. Interest and charges on the debts will also be frozen.

At the end of the IVA, your debts will be paid off and your creditors cannot chase you for the remaining balance.

How does an IVA work?

An IVA allows you to pay back your debts in affordable, usually monthly, instalments. When you apply for an IVA, you will work with an Insolvency Practitioner and they will start by assessing your finances. Once they have calculated what your disposable income is and what you can realistically afford to pay back (usually over the course of five years), they will help you draft an IVA proposal for your creditors. 

This proposal offers to pay back a certain percentage of the debts in monthly instalments. It is then up to your creditors to vote on whether they accept the offer or not. If at least 75% (by value) of voting creditors agree, the IVA is approved and you start making payments to your Insolvency Practitioner. You typically make a single payment each month. Your Insolvency Practitioner is then responsible for making payment to your creditors on your behalf. This is a lot easier to manage than multiple debts that are payable at different times of the month. The fees and associated costs of an IVA are incorporated into your affordable monthly repayment, and they are agreed with your creditors at the time the IVA is approved.

During the IVA, you will be subject to certain restrictions. For example, you cannot borrow more than £500 without permission from your Insolvency Practitioner. You must also agree to keep your Insolvency Practitioner up to date with any changes to your circumstances and understand that it is possible that your repayment could go up or down as a result of this.

As long as you make your IVA repayments on time every month, it will end after the agreed term and the remaining debt will be written off. However, if you miss payments, it can be extended. 

What debts are covered by an IVA?

Tipped over money jar with coins pouring out of it

The majority of unsecured debts are covered by an IVA. Debts that are covered include:

  • Personal loans (including payday loans)
  • Credit cards
  • Overdrafts
  • Utility bill arrears
  • Council tax arrears
  • Income tax and national insurance arrears

Although most debts are covered by an IVA, there are some exceptions. Debts that are not covered by an IVA include: 

  • Student loans 
  • Child support arrears
  • TV licence arrears
  • Magistrates’ court fines
  • Social fund loans
  • Court ordered maintenance arrears

How do I apply for an IVA?

If you want to apply for an IVA, you need to get some expert advice first. In some cases, it can be an effective method for writing off debt and helping you manage your finances but it is not always suitable. Depending on your personal financial situation, you may need to consider alternatives. At Swift Debt Help, we can advise you on whether an IVA is the right choice for you. 

The next step, if you decide to go ahead with an IVA, is to contact an Insolvency Practitioner. Your application must be submitted via an Insolvency Practitioner that has been authorised to set up IVA’s. They will talk through your finances with you and assess your situation before creating a proposal with you for your creditors.

What is the IVA application process?

IVA process - 'steps' highlighted with circle

Assessing your finances

The first step in the IVA application process is an assessment of your finances by your Insolvency Practitioner. They will need to see as many details as possible including bank statements, payslips, and bills. They also need information about your assets. 

This gives them a full picture of your financial situation and how much disposable income you have available to pay your debts.

Writing a proposal for creditors

Using all of the information that you have given them, your Insolvency Practitioner will help you to create a proposal for your creditors. The proposal will offer to pay back a certain amount of your debt in monthly instalments. The figure will be based on what you can afford to pay each month.

The proposal also outlines what is to be done with your assets. If you own a property you will not be required to sell it, however there may be a requirement to attempt to release equity if you are able to towards the end of the term of the IVA.

As well as the proposal, your Insolvency Practitioner will create a report for the creditors giving detailed information about your finances, details of the IVA and reasons why they believe that an IVA is beneficial for all parties involved.

Creditors make their decision

Once the proposal is ready, your Insolvency Practitioner will invite your creditors to attend a virtual meeting, providing them with an opportunity to review the terms of the proposal before voting on it. You may also attend this meeting if you wish, but this is not necessary.

At least 75% (by value) of voting creditors must vote in favour of the IVA for it to be approved. If you get enough votes, all creditors will be legally bound by the IVA, including those that voted to reject it. The value of the debt that you owe to each creditor determines their influence in the vote. For example, if all your creditors voted, and you owe 50% of your debt to a single creditor, their vote counts as 50% of the overall vote.

In some cases, creditors may ask for changes to be made to the terms of the IVA as a condition of them accepting your proposal. These are known as “modifications”. If this happens, you will be asked to confirm your agreement to the changes before the IVA goes ahead. You do not have to accept any proposed modifications, but it may result in the IVA not being approved if you don’t. 

The entire IVA application process usually takes around three weeks. Hopefully, the creditors vote in favour of the IVA and you can start making your monthly payments.

How do I qualify for an IVA?

An Insolvency Practitioner will determine whether an IVA is an appropriate option for you based on your circumstances, but ultimately it is your creditors’ decision whether or not your IVA will be approved. Typically, you must owe over £5000 to at least 2 creditors. Crucially, you must be insolvent, meaning that you are unable to make the monthly repayments on your debts even though you have a regular income.

As long as you meet these criteria, you can start an application for an IVA. However, your Insolvency Practitioner will discuss other options with you as well. Once the proposal has been submitted, it is down to your creditors to decide whether they accept it or not.

What if my IVA is rejected?

rusty no entry sign

If your IVA is rejected, in simple terms your situation remains the same as it did before you put the application in. You still owe money to your creditors and if you stalled contractual repayments to your creditors while you were making your application, you may have additional charges to pay. 

You can put another application in, but this is not advisable unless your situation has changed. When an IVA proposal is rejected, the reasons for the rejection are usually provided. So you should bear these in mind when considering another application. If it is still likely to be rejected, it is unlikely your Insolvency Practitioner will agree to put a further proposal forward on your behalf. There are however no restrictions on how many IVA applications you can make, and it is possible to get an IVA approved in the future even if you have had one rejected in the past. The Insolvency Practitioner will always make an assessment as to the likelihood of creditors accepting your proposal, they will advise whether they recommend making another application. 

If you aren’t able to get your IVA approved, you may need to consider your alternative options, such as bankruptcy or a debt management plan.

Alternative solutions

There are a number of alternative debt solutions available to you if your IVA is rejected. At Swift Debt Help, we can provide you with useful information on these alternative solutions.

Bankruptcy

Declaring bankruptcy can be an effective way to achieve debt write off. Your non-essential assets and disposable income are used to pay off as much of the debt as possible. Typically you will be automatically discharged from the bankruptcy after a year, however if you are required to make payments out of your income (known as an “Income Payments Agreement” or “Income Payments Order”), then this obligation can remain for up to three years. After the bankruptcy is finished, the remainder of your debts will be written off. You have less protection for your assets than you would with an IVA. It costs £680 to petition for your own bankruptcy.

DRO

A DRO (Debt Relief Order) pauses all of your debt repayments and interest for 12 months. It is only appropriate for individuals with very low disposable income, and has other strict criteria that must also be met in order to qualify. To apply for a DRO you must submit your application via an authorised debt advisor. It involves a one off cost of £90 to have your application considered by the Official Receiver. If a DRO is granted, if your situation has not improved at the end of the 12 months, your debts will be written off.

Debt Management Plan

A Debt Management Plan is an informal debt solution, meaning that it is not legally binding. If you are unable to afford your current repayments, you can negotiate a reduced rate with your creditors. You will not write off any of the debt, but it does make it more manageable. This option could help you avoid some of the negative effects that formal solutions have on your ability to borrow money in the future.

Need further help?

If you are struggling with debts that you cannot pay and you don’t know what to do, get in touch with Swift Debt Help today. Our expert advisors can talk you through IVA’s and other debt management solutions to help you find a way to regain control of your finances.

Request a Debt Assessment

Disclaimer: For guidance only. Financial information entered must be accurate and would require verification. Other factors will influence your most suitable debt solution.

What Are The Implications Of An IVA?

An Individual Voluntary Arrangement (IVA) is a formal debt solution that typically allows you to make repayments that you can afford, over a set period, with any outstanding debt written off at the end of the agreement. 

However, every case is unique and before making any decisions, it is important to consider the wider implications of an IVA and whether other options like bankruptcy may be a better alternative. There are a number of ways that an IVA will impact your life and your financial situation.

How will an IVA impact your job?

Man walking to work with briefcase in hand

Usually, an IVA will not impact your job, but there are important exceptions. If you work in a position of financial responsibility (bank clerk, accountant, solicitor, etc) it is expected that you uphold a certain level of personal financial stability. So, in this case, an IVA may affect your job and you may not be able to continue in that position until it has finished. Some other positions of responsibility, like working for the police and prison service or the fire brigade, may be affected. If you own a business, you can continue operating. However, it will be harder to find credit. 

Before entering into an IVA, speak to your employer and review your employment contracts to determine whether you are affected or not.

Does an IVA impact your future income?

Calculating income on smart phone

This is dependent on your career plans. If you want to enter one of the careers listed above, it could be a problem. Otherwise, it should not impact your future income. 

However, if you are planning to sell assets during your IVA, you may have to put some or all of the income from the sale into debt payments.

How will an IVA affect your possessions and assets?

Five pound note rolled up

When you enter into an IVA, you must declare all of your assets to your Insolvency Practitioner who will work with you to draft your offer of repayment to creditors (your ‘Proposal’). All of your significant assets will be listed within the proposal as creditors need to see an accurate reflection of your financial circumstances in order to make a decision as to whether your offer seems reasonable and fair to them. There is no legal requirement for you to sell or surrender any particular assets of value as part of your offer, however, generally speaking, creditors are unlikely to agree to write off debt for you if they believe your assets are of excessive worth which could be sold to help repay the debt.

If you are a homeowner, and have equity available in your property, it will be expected that your proposal will include your agreement to attempt to release a portion of this towards the end of your IVA. The inclusion of home equity, as well as any other significant assets, will be discussed and agreed with you during the process of putting your IVA proposal together.  

Can you get a mortgage with an IVA?

Man holding house

Getting a mortgage during your IVA can be difficult. You must seek approval from your Insolvency Practitioner if you want to borrow more than £500. 

An IVA (as with any form of insolvency) is recorded on your credit file for 6 years from the date it is approved, and is publicly available information as it is disclosed on the Insolvency Register. A mortgage lender or broker will assess your application against lending criteria. The fact that you have been declared Insolvent could affect whether a mortgage is available to you, or the rate that will be offered.

How long does an IVA stay on a credit file?

An IVA stays on your credit report for 6 years from the date of approval. 

Does an IVA affect financial mis-selling compensation?

In many cases, as part of your proposal to creditors, the Insolvency Practitioner will agree to pursue potential claims on your behalf. Any money that you are awarded is considered an asset of the IVA and it will help repay the creditors in the IVA.

What other restrictions does an IVA have?

An IVA has other restrictions that you should be aware of when making your decision: 

  • Missed payments – you must maintain payments towards your IVA. If you miss the equivalent of 3 monthly payments without any agreed payment breaks being sanctioned by the Insolvency Practitioner, then you will be in breach of the terms of the arrangement. If this is not remedied, your IVA may fail. Any payments that are agreed to be missed, still need to be paid at the end of the arrangement meaning that it could last longer than initially proposed.
  • Taking out additional credit – You are unable to take out any additional credit, of more than £500 without the prior consent of the Insolvency Practitioner. This includes use of catalogues and overdrafts .
  • Budget restrictions – When proposing your IVA, you are required to put all of your surplus income towards debt payments, and live within a budget. During the lifetime of the IVA if your financial situation improves, you are required to disclose this to the Insolvency Practitioner and your payments may increase.

Is An IVA Worth It?

There are a lot of IVA advantages to consider. You can write off a significant portion of your debt, in some cases, and you will avoid high-interest payments. Ultimately, it allows you to clear your debts and secure your financial situation. 

On the other hand, you must consider the IVA disadvantages when weighing up your options. It does impact your life and finances in a number of ways and you should think carefully about whether you are willing to deal with the implications. 

In the end, it all comes down to your own personal financial situation. At Swift Debt Help, we can advise you on whether an IVA is the right option for you and take you through the alternatives if it is not. Fill in our form below to find out if you are eligible for an IVA.

Find Out Whether You Could Be Better Off With An IVA.

Am I Eligible For an IVA?

Disclaimer: For guidance only. Financial information entered must be accurate and would require verification. Other factors will influence your most suitable debt solution.