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?

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.