IVA or Debt Relief Order -If you’re in debt and are struggling to find a way to repay your creditors, then there are several formal, legally binding debt solutions that could help you to clear your debts in a more manageable way. You may have heard of an IVA or a DRO but are wondering exactly what each of these debt solutions are. So, we have put together a brief summary of each debt solution below.
What is an IVA?
An IVA (Individual Voluntary Arrangement) is a legally binding agreement that can be arranged by an Insolvency Practitioner to help you repay your creditors in an affordable way. Before the payment plan is arranged and put forward to your creditors, your income and expenditure will be assessed by your IP. This is to ensure that you have enough money each month to pay for necessities, such as your rent/mortgage, bills, and food. Once an affordable amount for the payment plan is decided, and if it’s accepted by your creditors, then you’ll have to pay the agreed amount each month and stick to the agreed terms.
What is a DRO?
A DRO (Debt Relief Order) allows your debt, and any interest owed, to be put on hold for twelve months. After this time, if you continue to meet the eligibility criteria, then any included debt will be written off. A DRO is an alternative to bankruptcy if you have limited assets and affordability.
Which is better? IVA or Debt Relief Order?
Now you understand what an IVA and a DRO is, you are probably wondering which would be the best debt solution for you. Below, we have put together a list of some of the pros and cons, which will hopefully help you decide on whether or not an IVA would suit your financial situation, or if a DRO would be the right solution to help you out of your debt.
IVA Pros and Cons
IVA Pros:
✓ Write off unaffordable debt. At the end of your IVA, any outstanding debt will be written off.
✓ You only pay what you can afford. The payment is tailored to your circumstances. As previously mentioned, your IP will assess your income and expenditure to ensure you’ll have enough money for necessities.
✓ You will no longer be harassed by creditors and/or bailiffs for payment. As long as you stick to your IVA agreed terms, legal action, such as CCJs, cannot be taken against you.
✓ Business owners can continue to trade.
✓ An IVA is an option for homeowners.
✓ Interest and charges will be frozen. As long as you stick to your agreed terms, your creditors will not be able to add on any extra charges.
IVA Cons:
X There’s still the risk of bankruptcy if the IVA fails.
X An IVA could affect employment. This does depend on the sector you work in, or are considering working in. For example, working in the financial sector, there may be certain conditions in place regarding IVAs.
X It will negatively impact your credit rating. An IVA will stay on your credit file for six years, which will affect your ability to apply for loans, car finance, or a mortgage.
X You have to follow a strict budget.
X An IVA isn’t private. It will be registered on the Insolvency Register, which anyone can access
X If you are a homeowner, you may need to release equity from your home to pay off some debts.
DRO Pros and Cons
DRO Pros:
✓ Any future interest and charges will be frozen on any debt you owe.
✓ Your creditors will no longer be able to take legal action against you.
✓ Your DRO will only last twelve months after which any debts will be written off.
✓ This debt solution is one of the fastest ways to clear your debts.
✓ No monthly payment
DRO Cons:
X To be considered for a DRO, you must meet certain criteria, such as your debts must not exceed £30,000 and you must reside in England, Wales or Northern Ireland. Also, your surplus income must not exceed £75 per month.
X Homeowners are not allowed to apply for a DRO.
X A DRO isn’t private. It will be registered on the Insolvency Register, which anyone can access.
X If your situation changes, and you no longer meet the DRO criteria during the 12 month period, the DRO will be revoked.
X It will negatively impact your credit rating. A DRO will stay on your credit file for six years, which will affect your ability to apply for loans, car finance, or a mortgage.
So, an IVA vs a Debt Relief Order: which is the right debt solution for you? Hopefully this list of some of the pros and cons for each will have helped you to decide. However, If you’d still like further information on IVAs or DROs, please contact us, and we’d be happy to answer any questions you may have.
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An IVA (Individual Voluntary Arrangement) is a legal agreement that can be arranged with your creditors in order to pay back some or all of your debt. If your application for an IVA is successful, then the agreed payment plan will be set up for you to pay off your debt over a period of time (typically five years) through monthly payments. Once the IVA is in place, your creditors will have to stick to the agreement.
You might be ready to apply for an IVA, but if you’d still like to know how this debt solution can protect you, then consider the following five benefits of having an IVA below.
1. Debts cannot rise
Once an IVA has been approved, your creditors will not be able to add on any interest or extra charges. As long as you keep up with your repayments and follow the terms of your IVA, then your debt will not increase.
2. Your assets are protected
There are a few common questions asked by those who are considering different debt solutions, such as, will I lose my house with an IVA? The short answer is no, unless you have volunteered to sell it to clear some of your debt. Once the IVA has been approved, your unsecured creditors cannot take further legal action to enforce the debt, such as applying for a CCJ (County Court Judgement) or instructing bailiffs to seek possession of your assets.
3. Protection from changing circumstances
During the lifetime of your IVA, it is expected that your situation will more than likely change. For example, if the agreed IVA payments become unaffordable due to a reduction in income, this does not mean that the IVA automatically fails. Your IP (Insolvency Practitioner) will usually be able to grant you a payment reduction (up to a certain level) and you will also have the ability to request more significant changes to the arrangement through what’s known as a Variation Meeting. This provides an opportunity for you to put forward a revised proposal, detailing any changes in circumstance, for your creditors to consider.
4. Protection from bailiffs
Your creditors will not be able to take legal action against you once an IVA has been approved, which means, if you stick to the terms of your IVA, you should not have to worry about being approached by bailiffs. However, it usually takes around four weeks for an IVA to be set up, so during this time, you could still be contacted by people trying to collect money to repay debt. If this happens, you should be honest, and explain that you’re in the process of setting up an IVA.
5. Pay what you can afford
When setting up an IVA proposal, your IP (Insolvency Practitioner) will arrange a payment plan by, first, taking into account your income and expenditure. This ensures that you’ll only repay your creditors an amount that you can realistically afford which will allow you to have enough to pay your rent/mortgage, bills, and necessities each month. This is followed up by a yearly review whilst the IVA is in place which will, again, take into account your particular circumstances, ensuring that you will not be paying an unaffordable amount.
These are just a few of the ways that an IVA can protect you and, ultimately, help you to find a manageable solution for your debt situation.
If you want to find out if an IVA is a suitable option for you, then please contact us, and we’d be happy to help.
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An IVA (Individual Voluntary Arrangement) is a legal agreement with your creditors to pay back some or all of your debt. Your IP (Insolvency Practitioner) will arrange a payment plan on your behalf, taking full consideration of your income and expenditures. You’ll repay your creditors over a period of time, usually through set monthly payments, and, once approved, your creditors will have to stick to this agreement. Getting a mortgage after an IVA can be challenging; however, there are things you can do to increase your chances of being accepted by a lender. Below, we have briefly summarised some steps you can take, and things to be aware of before contacting lenders, so keep on reading to learn how you can get a mortgage after having an IVA.
Getting Ready
IVA completion certificate
An IVA completion certificate can be used to show lenders that you’ve successfully completed your IVA, having made all repayments, which proves you’re no longer bound by an agreement with your creditors. The certificate can be obtained from your Insolvency Practitioner. As part of the completion process your Insolvency Practitioner will issue this certificate directly to you as well as to all of your creditors.
Saving up for a deposit
It is unlikely you’ll be able to get a mortgage with a small deposit, such as a 5% or 10% deposit, until the IVA has been removed from your credit report. It will take six years–from the date the arrangement was approved–for the IVA to disappear from your credit report.
Once your IVA has completed, you should have some disposable income that you can put towards saving for a deposit. The higher the deposit you are able to put down, the more mortgage options you’ll have.
Working on your credit score
Once your IVA has come to an end you can start looking to improve your credit score. Here are a few pointers that can help:
✓ Check your credit report regularly. Sometimes mistakes are made so it’s worth checking for errors that may impact your credit score.
✓ Register to vote.
✓ Report rental payments to a free scheme to show a record of regular payments.
✓ Use Experian Boost to unlock information on your salary and council tax.
✓ Request for a ‘soft search’ when applying for credit.
✓ Only use around a third of your credit limit.
✓ Never miss repayments.
You may want to learn more about credit ratings and reports to help you understand why it’s important to build your credit history.
I’m Ready to Apply for a Mortgage. What Now?
Now that you’ve discovered how you can improve your chances of being accepted by a lender, you may have decided that you’d like to apply for a mortgage. Read through the two steps below which should hopefully assist you:
1) Contact a Mortgage Specialist Broker
A specialist broker can add insight into which lenders will be more likely to accept you for a mortgage since there may be lending restrictions based on the fact that you’ve been in an IVA. A specialist broker will also advise you on what rates to expect.
2) Be realistic with your budget
If you’ve had an IVA, you’ll be used to evaluating your income and expenditure and living within a budget. When assessing your eligibility for a mortgage, the lender or broker will be following the same process; however, they are checking on your ability to make a sustainable mortgage payment. Be honest, clear and transparent during this process so that you don’t overcommit to a payment that you will struggle to make further down the line.
By following the above two steps, and by actively saving and working on your credit score, you should be able to put yourself in a good position to successfully apply for a mortgage.
If you’d like to know more about what’s entailed in an IVA, then please contact us, and we’d be happy to help.
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Once the IVA has been removed from your credit report you can start rebuilding your credit score. Here is how to improve your credit score after an IVA.
Before you can start rebuilding your finances, you must ensure that you have successfully completed your IVA. When you first enter the IVA, your Insolvency Practitioner will inform you of how many monthly payments you must make. Towards the end of your IVA you may also be asked to remortgage your home and use the money to pay off some of your debts.
When you come to the end of your IVA, your Insolvency Practitioner will check that all payments have been made on time. If there are any missed payments, the IVA may be extended. But if everything is up to date, you just need to make your final payment.
When your IVA is completed, it should be automatically removed from your credit reports and you will also be removed from the insolvency register. Bear in mind that it can take a few months for records to be updated. Check your credit score after a month or two to make sure that the IVA has been marked as completed. If it has not, get in touch with the credit agency and send them a copy of the IVA completion certificate and they will rectify the mistake.
The first step to rebuilding your credit profile is to make sure that all bill payments are made on time and your credit score should slowly start to improve. When possible, you may want to consider borrowing small amounts of unsecured debt, as long as you can repay it on time. This serves as an indicator that you are a reliable borrower. After being on an IVA you will have grown used to living within a budget. It is recommended that any future debt repayments are manageable and the payment sustainable for you to avoid struggling with your finances.
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When deciding if an IVA is the right debt solution for you, it is important to consider your personal circumstances and priorities. Different debt solutions bring with them different qualifying criteria and obligations from you, should you enter into them. An IVA works by you making manageable payments towards your debts over a set period (typically 5 years), with any remaining included debt being written off upon completion of the arrangement.
This guide will take you through some of the scenarios where an IVA could be the best solution.
1. You owe debts to multiple creditors
An IVA is typically suited for people that owe debts to multiple creditors. If you only owe money to a single creditor, you should contact them and ask about a more suitable repayment plan. A single debt is a lot easier to deal with and you can often come to some arrangement with your creditors without having to enter into a formal debt solution like an IVA.
However, if you have multiple unsecured debts with different creditors, your situation is more complicated. Managing lots of different repayments is difficult and this is often how people lose control of their budget. An IVA will not only help you write off a portion of that debt, but it also allows you to make one single payment, which is then distributed amongst your creditors on your behalf. This makes it far easier to manage debts to multiple creditors.
2. You can afford monthly debt repayments
Before you enter into an IVA, your Insolvency Practitioner will assess your finances. Your income and essential expenditure will be reviewed to create a budget. This will then determine an affordable monthly repayment that you are able to make to all of your debts through the IVA.
However, it’s important to consider your situation before you enter into an IVA. If you have a reliable source of income and you are confident that you can make the repayments on time each month, it is a good choice. An important factor when considering an IVA is that both you and the Insolvency Practitioner believe that the arrangement will be sustainable.
3. You owe more than £6,000 of unsecured debt
An IVA is designed for people that are unable to pay their unsecured debts within a reasonable timeframe (typically 6 years). If you owe a relatively small amount of money, you may be able to manage the situation with improved budgeting and informal agreements with your creditors. Fees are payable within an IVA, although these form part of your affordable monthly repayment. This means that creditors may not be inclined to agree to an IVA where your budget shows that you could potentially pay them back in full over a similar time period outside of an IVA where fees would not apply.
4. You work in the correct job
In most cases, an IVA will not impact on your employment. However, there are some notable exceptions that you should be aware of. Certain jobs do not allow you to have an IVA. These are often jobs that involve handling money or being responsible for finances in some capacity. Examples can include jobs in:
Accountancy
Other financial services
Law
In some cases, jobs in other industries may not allow you to have an IVA. It is important to check your contract, or speak to your employer in whatever industry you are in before entering into an IVA if you are unsure.
5. You don’t want to directly deal with your creditors
Many people find that one of the most stressful things about being in debt is the constant contact from creditors. If you owe money to a lot of people and you are getting a lot of phone calls and letters demanding payment, it can take a real toll on your life. Often people fail to deal with their debt properly because they don’t want to face all of their creditors and try to negotiate with them.
An IVA is ideal if you are in this situation because you do not have to deal directly with them. Your Insolvency Practitioner will help you draft an offer for your creditors and take it to them on your behalf. If there are any disputes about the offer, they will negotiate with creditors for you. All payments will be made to your Insolvency Practitioner too, and they will distribute them amongst your creditors.
As soon as you enter into the IVA, you have legal protection and your creditors are no longer allowed to contact you for payment. Your Insolvency Practitioner becomes a liaison between you and your creditors. If dealing with creditors is becoming a major source of stress for you, an IVA could be the solution that you are looking for.
If you need some advice about whether an IVA is right for you, and what other debt solutions are available to you, get in touch with Swift Debt Help today and speak to a member of our expert team.
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An IVA (Individual Voluntary Arrangement) is an effective debt solution for many people and it may allow you to write off a portion of your debts. Although there is no limit on the amount of debt that can be included, only certain types of debt can be included in an IVA – here are 12 that can.
1. Catalogues
Catalogues are used by many people as a convenient way of purchasing goods and spreading costs over a period of time. Catalogue debts tend to have high interest rates, so many people find themselves unable to pay. Your catalogue debts can be included in an IVA, however you should stop purchasing items in this way in order to manage your monthly budget going forward.
2. Credit cards
If you’re struggling with credit card debt you may have previously managed this through transferring balances on to other cards and trying to keep your minimum repayment as low as possible. For many people there comes a point where credit card repayments, especially when coupled with other streams of lending, become unmanageable within their monthly budget. Credit card debts are another common unsecured debt that you can write off with an IVA.
3. Personal loans
For many people struggling with debt, an unsecured loan repayment can feel difficult to pay as it is one fixed monthly repayment, with little flexibility. It can often be larger than other debt repayments that you are faced with each month, particularly if you’ve used this to consolidate other debts from the past. Unsecured personal loans are included in an IVA.
4. Overdrafts
Overdrafts are commonly used as a convenient way to access funds to meet monthly repayments on credit or bills. People struggling with their finances often find it difficult, or impossible, to get themselves out of their overdraft. In this situation people are often at risk of incurring additional penalty charges by accidentally going over their overdraft limit which only makes their problem worse. Overdrafts are included in an IVA. It is advisable to change banks to a provider to which you don’t owe money before entering into an IVA – any accounts to which you owe money will be frozen when you declare insolvency.
5. Gas and electricity debt
It’s quite common for people struggling with debts to build up arrears with their utility providers. These are unsecured debts, so they are also included in an IVA. This can include debts from a previous property as well as your current home. It is important to remember that you will be responsible for making payment to your ongoing usage after entering an IVA, the monthly repayments for your utility bills will be taken into account when carrying out your budget assessment.
6. Water arrears
The rules surrounding water arrears are the same as gas and electricity debt. You can include any existing debts in your IVA, and your ongoing monthly payments will be included in your monthly budget so you should find paying future payments manageable.
7. Council tax arrears
Council tax arrears are considered a priority debt because penalties for not paying them can be severe. In rare cases, you could even be put in prison for refusing to pay. These debts can be included in an IVA and if you are unable to pay, it is important that you seek debt advice as soon as possible.
8. Payday loans
Payday loans should be utilised when you need emergency access to funds, and the balance will be repaid on your next payday. However, this is often not the case, and when this becomes a debt you need to pay on a monthly basis it can be very expensive as they have high interest rates. If you only make the minimum payments, the debt will continue to increase. As with other unsecured loans, payday loans can also be included in an IVA.
9. Store cards
A store card can seem like an attractive way of paying for your instore purchases, particularly where there are discounts being offered, or when you might not have the cash available at the time of purchase. Much like with catalogue debts, this type of borrowing can become difficult to manage if you have many balances spread across multiple creditors. The interest rates can often be high.
10. Income tax and National Insurance arrears
Self-employed people struggling with debt often find it difficult to pay their end of year tax and National Insurance bills, alongside managing the repayment demands of their other creditors.
If you are self-employed (or have previously been self-employed) historic debts from HMRC, along with your expected debt for the current tax year will be included as a debt in your IVA along with other unsecured creditors.
11. Tax credits
If you claim tax credits, there is a chance that you can be overpaid. This happens when there are mistakes with the information that the DWP holds about you or your financial circumstances change. Overpayments can be deducted from future tax credits or taken out of your paycheck. These debts can usually be included in your IVA.
12. Guarantor Loans
If you have struggled to find mainstream credit, then a more accessible option is to take a guarantor loan; where you nominate a friend or family member to guarantee the loan repayments in the event that you are unable to meet them. As an unsecured debt, they are also included in an IVA however the Lender will be entitled to pursue the guarantor for any unpaid balance.
Need more IVA advice? Contact us today
At Swift Debt Help, we can give you guidance when applying for an IVA and answer any questions you may have about what debts can be included. We can also discuss alternative options with you.
Fill out the contact form, send us an email, or give us a call and we can help you deal with your debt problem today.
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Applying for an IVA can be the right solution to your debt problems, but it all depends on your specific circumstances. It is important that you fully understand the implications of an IVA when making your decision. There are a number of misconceptions about this debt management solution. Some of these are detailed below, along with some facts to help you to decide if an IVA is right for you.
1. You will not be able to open a bank account
Although you may need to make changes to your bank account, that doesn’t mean you cannot open one at all. If you owe money to your bank through loans or overdrafts, they have the right to take money directly from your current account to pay towards the debt. This is called the right to offset. If this is the case, you will need to open a new bank account so your budget is not interrupted by the bank taking money from your account.
When you open a new account, you may not be able to have an overdraft facility as that is a form of credit. This should be discussed with your Insolvency Practitioner.
2. You will be forced to remortgage your property
If you are a homeowner, depending on your circumstances and the level of equity in your home, towards the end of the IVA, you may be expected to attempt to release a portion of equity by way of a remortgage for the benefit of your creditors.
Upon considering an IVA, any obligations in respect of your property will first be explained and agreed with you before you enter into it. In many cases properties can be excluded from the terms of the arrangement where your circumstances demonstrate that your equity is either of a low value, or unlikely to be released by a remortgage.
In some cases where you are shown to have a significant level of equity, but a remortgage can not be achieved, creditors may agree to a longer IVA in lieu of this equity.
3. All creditors need to agree to the IVA proposal
When you put your application in, your Insolvency Practitioner will help you to write a proposal for your creditors, offering to pay a certain percentage of the debt and asking that the rest be written off. Your creditors will then decide whether they agree or not. But it’s a myth that all of them have to agree to the proposal for the IVA to go forward.
Your creditors are not obliged to vote on your IVA proposal. Of those that do vote, only 75%, by value, must agree to the IVA for it to be approved and legally binding on all of them.
4. You have to tell your employer about an IVA
You only need to tell your employer about your IVA if it is specified in your employment contract. Some jobs, especially those that involve money handling or management, require you to disclose an IVA. This includes things like accountants, bank tellers, and legal services. Otherwise, you are not required to tell them.
Details of your IVA will be on the public insolvency register, but your employer will only see this if they actively go and search for your name.
5. You can’t obtain credit during your IVA
It is a standard condition of an IVA that you cannot obtain credit above £500 without the permission of your Insolvency Practitioner (the Supervisor of your IVA).
Whilst subject to an IVA you are expected to live within a reasonable budget to ensure that you are able to pay your agreed IVA contribution. Therefore, you should think carefully before obtaining credit of any value as any subsequent repayments of this credit need to be affordable and within your budget. Credit obtained after the approval of your IVA will not be bound by the IVA and you will be responsible for repaying it separately.
If you feel you need to apply for credit of a value above £500, it is important that you seek the consent of the IVA Supervisor before doing so.
6. An IVA will always be on your credit report
One of the reasons that people are cautious about entering into an IVA is that they think it will be on their credit reports forever and they won’t be able to borrow money in the future. It is true that an IVA is reported on your credit file, but it only stays on your report for 6 years from the date of approval; after that, it will be removed.
7. Your IVA will fail if you miss a payment
It is important to make regular payments into your IVA, in line with the agreement. But it is a myth that your IVA will automatically fail if you miss one payment. If you are struggling to make the payments, you can speak with your Insolvency Practitioner who can work with you, and if appropriate approve a payment break. This gives you some breathing space to help you fix your financial situation. Typically if you become in arrears with your payments to the equivalent of three months (not including agreed payment breaks), this will be classed as a breach of the terms of the agreement, and your IVA is at risk of failure. Always talk to your IVA provider if you are struggling to make payment.
8. Not all interest charges or fees are frozen
Interest charges and fees make it far more difficult to get out of debt. One of the benefits of a formal arrangement such as an IVA is that interest charges and fees on your debts are frozen. Your creditors reserve the right to re-apply any owed interest and charges back to the debts owed if for any reason, your IVA fails. Once the IVA completes all outstanding balances will be written off.
9. You cannot save money with an IVA
When you take out an IVA, you will work with an IVA provider to produce a budget based on your income and expenditure. Your creditors expect you to offer all of your monthly disposable income towards the IVA. It may be difficult to put any money into savings at that point in time.
If your situation changes for the better during the IVA, one of the key principles of the arrangement is that both you and the creditors feel the benefit of this improvement, so you would get to keep half of any increase in disposable income. You’re free to utilise these funds as you see fit.
Need more IVA advice? Contact us today
If you want more information about the specifics of an IVA, or some advice about whether it is the right option for you, Swift Debt Help can give you some guidance.
Fill out the contact form, email us, or give us a call and a member of our expert team will give you the advice that you need.
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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?
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?
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?
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.
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Disclaimer: For guidance only. Financial information entered must be accurate and would require verification. Other factors will influence your most suitable debt solution.
An Individual Voluntary Arrangement can be an effective debt solution if you are unable to afford your monthly repayments to creditors. You will make an agreement with your creditors, based on your circumstances at the time, to make affordable payments, over typically a 5 year period with any outstanding balances being written off at the end of the IVA.
Understanding the benefits of an IVA will help you decide if it is the right debt solution for you. Here are seven IVA advantages to consider.
1. What you repay is based on your affordability
You will work with an Insolvency Practitioner when entering into an IVA and they will negotiate with your creditors. They assess your finances to work out what you can afford, and then make an offer to your creditors. Usually, your IVA will offer them a return that is lower than the total debt owed. However, the amount you repay is still likely to be higher than it would be if you declared bankruptcy.
If your Insolvency Practitioner thinks that an IVA is the right option, they will help you to draft your proposal which will contain a reasonable offer that is beneficial for you and your creditors. Insolvency Practitioners work with creditors every day, and would only agree to propose an IVA if they believe it has a reasonable chance of being accepted by them.
2. Manageable monthly repayment
The monthly payments you make are calculated based on your income and financial responsibilities at that point in time. In other words, you only pay what you can realistically afford each month, making IVA’s an affordable debt solution. You will be able to clear your debt while also meeting your other financial obligations. During the course of an IVA, your circumstances may change. If this happens, it is possible for your payments to go up, or down, depending upon your affordability at the time.
3. Creditors can no longer contact you
For many people, being chased by creditors is incredibly stressful and makes dealing with debt much harder. But once you enter into an IVA your creditors can no longer demand payment from you. They are also barred from taking legal action against you (filing for a County Court Judgement, for example). The agreement is legally binding, so you have protection against creditors for the duration of the IVA.
Often, you will still get contact from creditors in the first few months of your IVA. This is simply because they have not updated their records yet and their system still shows that you owe money. If this happens, simply inform them that you are in an IVA and then direct them to your Insolvency Practitioner.
4. Interest and charges on unsecured debt will be frozen
Some people may find themselves trapped in debt because their monthly payments are only enough to cover the interest on the debt. The principal amount never goes down, so they are unable to clear the debts. Charges for late payments only increase the amount of debt, making it even harder to manage.
When you enter an IVA, all interest and charges on unsecured debt will be frozen. This stops the debt from increasing further during the IVA.
5. Have an end in sight
An IVA is proposed to last for a set time period, typically for five or six years. During that period, you make your monthly payments, comply with the terms of the arrangement and at the end of it, any remaining debt is written off. An IVA gives you a clean slate and you will be free from any unsecured debts included within it, so you can start rebuilding your finances. If you fail to make monthly payments on time, the IVA may be extended and you will be paying for more than the originally proposed term. However, as long as you meet your obligations, once the fixed period is over, you are free to move on with your life without debt.
6. Your assets are protected from bailiffs
If you’re not in a formal debt solution and you fail to make your payments, your creditors can file a County Court Judgement against you. If granted, this is one step closer to them being able to send bailiffs to collect on the debt.
Once you enter into an IVA your assets are protected. In some cases, assets will be included in the IVA, so they are sold and the money is paid to your creditors. However, you can exclude certain assets like your car if it is of reasonable value and required for day to day living. The majority of your possessions will automatically be excluded already and you will not have to sell your home, though you may be asked to remortgage to release equity.
Once the IVA begins, you have legal protection and your creditors can no longer take action against you, including sending bailiffs to collect on the debt.
7. You will receive debt support throughout the process
When you enter into an IVA, you work with an Insolvency Practitioner who can give you advice and support. You will devise a household budget in order to work out your disposable income and ensure this is affordable. If you have concerns about the IVA or how to proceed once it is finished, somebody will always be on hand to answer your questions. Having that support makes a big difference, especially if you are struggling with large debts.
There are some downsides to an IVA you should consider, such as an impact on your credit score. You are also subject to certain financial restrictions during an IVA. But if you are having difficulty paying your debts and your creditors are chasing you for the debt, there are a lot of benefits to an IVA.
Get in touch with Swift Debt Help today if you are struggling with debts. We can give you expert advice and talk you through the different debt solutions that are available to you.
Request a Debt Assessment
May not be suitable in all circumstances, Fees may apply, your credit rating may be affected.
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Disclaimer: For guidance only. Financial information entered must be accurate and would require verification. Other factors will influence your most suitable debt solution.
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?
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?
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?
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?
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?
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Disclaimer: For guidance only. Financial information entered must be accurate and would require verification. Other factors will influence your most suitable debt solution.
