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What is an IVA?

The term IVA stands for Individual Voluntary Arrangement. IVAs are available in England and Wales and can stop creditors from starting bankruptcy proceedings and potentially write-off a proportion of your overall debt. The Scottish equivalent of an IVA is a Trust Deed. An IVA is a legally binding agreement between you and your creditors, to pay off a set amount of your debt over a given period, usually three to five years. An IVA is set up through a Licensed Insolvency Practitioner or “IP” as they are known who is normally authorised by an accountant or solicitor.
 
Who is an IVA suitable for?
 
An IVA may be suitable for you if you: 
  • Owe at least £15,000 in unsecured debt
  • Are struggling to pay your monthly bills
  • Are able to contribute at least £200 a month towards your unsecured debt
  • Are facing bankruptcy
  • Are facing repossession
  • Have large amounts of unsecured debt and have fallen into arrears with your mortgage payments
  • Do not have enough money to pay all of your credit card and loan bills each month
  • Are living off your credit cards for day to day bills and expenditure
  • Are coming to the end of fixed rate mortgage and are expecting your payments to increase beyond your means
 
What are the benefits of taking an IVA?
 
  • Avoid bankruptcy
  • Avoid losing your house and home to repossession
  • Only pay what you can realistically afford
  • Write-off up to 75% of your unsecured debt
  • Stop creditors hassling you for debts
  • At the end of the IVA your debts will be cleared
  • Your job is unaffected
 
How does an IVA work?
 
The Insolvency Practitioner IP will make enquiries into your income and expenditure. The IP will then calculate your disposable income after taking into consideration the basic cost of living. This will provide the figure that you have free to pay your creditors on a monthly basis. This is usually expressed as an amount that you would be willing to pay for each £1 owed, for example the IP may state that you are only able to pay back 30p for every £1 owed. Based on this figure the IP will prepare an IVA proposal and present this to the creditors.   All of the creditors meet and if the creditors who agree are owed at least 75% of the total debt then the proposal becomes legally binding to all of your creditors, even those that have not agreed. The creditors will freeze your interest and are not allowed to hassle you for the duration of the agreement. The monthly payments are then made to the creditors through the IP until the agreed number of payments has been made. 
 
What can be included in an IVA?
 
An IVA is not a magic wand to wipe out all of your debt. An IVA will only cover unsecured debt such as an overdraft, unsecured loans, credit card bills and store card bills. IVAs will not cover secured debt such as loans secured on your property or hire purchase agreements. Also bear in mind that if you want to include an unsecured debt that you have with your own bank then they may close, restrict or downgrade your existing account. Nowadays though, most IPs will be able to set you up a basic alternative bank account with a debit card facility. If you have equity in your property the creditors may only accept an IVA proposal subject to you releasing any equity in your property to put towards the outstanding unsecured debt.   Likewise, if you have a car that you do not use for work you may be asked to sell this.  Similarly if you regularly pay into a private pension you may be asked to stop paying into the pension and to put that money towards your outstanding debt. 
 
How much will an IVA cost?
 
The IVA proposal will include an offer that usually means that you end up paying around 30p back for each pound owed. The actual amount will vary depending on your individual circumstances and living expenses. An IVA will involve you making regular monthly payments for the duration of the agreement which is normally three to five years. Your insolvency practitioner charges two fees; a Nominee Fee for preparing and proposing your IVA and a Supervision fee for administrating the IVA. These fees are normally included within your monthly payment. Fees vary from firm to firm and it is important to understand how you are being charged for your IVA. 
 
 
What happens if my circumstances change?
 
It is important that you can reasonably afford the proposed monthly figure and will be able to make the payments on a monthly basis for this period. If your expenditure is expected to rise, for instance if you are coming to the end of a fixed term mortgage deal, or your income is expected to fall, for instance if you are a working couple and are likely to have children in the next five years, then it is unlikely you will be able to meet the payments in the future. You will normally need to be reasonably stable and have a decent level of income, as if you fail to keep up the monthly payments, unless your creditors will accept an even lower monthly payment, you may still end up being petitioned for bankruptcy. If you are in an IVA and you are unable to make a payment then the most important thing is to make your IP aware immediately. If you dont think you can keep up payments for the full term then you need to ask yourself is an IVA the right solution for me?
 
Alternatively, if you get a wind fall, say you are luckily enough to win the National Lottery or if your horse comes in first at the 2.30 at Wolverhampton or your Great Aunt Flo leaves you an inheritance, you are obliged to declare this to your IP and may be asked to repay part or all of the outstanding debt that is owed under the IVA. 
 
What are the disadvantages of taking an IVA?
 
  • You may be asked to remortgage to release some equity in your property to contribute towards the total debt.
  • You may be asked to surrender any endowment policies or savings to contribute towards the outstanding amount.
  • You may be asked to stop contributing towards any private pension or other regular investment.
  • An IVA will appear on your credit file for six years. The record of the IVA is also available on the public records.  
  • During the IVA you are not allowed to borrow any money from credit card or unsecured loan companies, however you may be able to release some equity from your property with the written consent of your IP. As you have an IVA on your credit file the number of lenders willing to make you any offer will be restricted, the rates will be higher than those that you see advertised on the high street and the lender will normally require a letter from your IP confirming that payments to the IVA have been made satisfactory. 
  • You will be locked into making the repayments for five years.
  • Your banking facilities may be downgraded or restricted.  
  • If you are unable to keep up the repayments you may be made bankrupt
 
What to do next?
 
If you are looking for debt help then before proceeding with any solution you need to ensure that you have fully explored and understand all of the other options available to you. There are a number of non-for-profit organisations that can give you guidance in these areas. A comprehensive list of these organisations can be found at the end of this guide. If you have decided that an IVA is the most appropriate and best option for you, speak to more than one company to compare the service and cost. Make sure you understand what the costs are and importantly if there are any upfront costs you need to understand what happens to this money if the IVA proposal fails. Most Insolvency Practitioners and debt solution companies advertise FREE, confidential, no obligation advice so take advantage of this before making any hasty decisions. Remember, once you enter the IVA you are tied in for a number of years so it is not something to be entered into lightly but in the right situation could be the helpful hand that you need. 
 

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2009-04-17 14:59:17 © Moneyextra.com



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