What is an IVA, and can it help you out of debt?

What is an IVA?

'What is an IVA' is a question we get asked a lot. So here's what you need to know about IVA's.

An IVA or Individual Voluntary Arrangement is a legally binding contract between you and your creditors to pay off as much as you can afford over what is usually a 5 year period, and write off what you can't afford.

They were first introduced by the Government in 1986 as a way of helping creditors (the people you owe money) recover more money than they would have received under Bankruptcy laws, and consumers (you) avoid the disadantages bankruptcy presents. Used appropriately, it has a number of advantages over bankruptcy.

How much debt is written off?

The principle behind an IVA is to make the total debt affordable and repayable in 5 years. For people in serious debt this normally means they need a large part of their total debts to be written off if they are going to stand any chance of this happening. How much debt is written off is always different, and don't believe the hype of the often reported 90% of people’s debts being written off. Average write-offs are normally between 50% - 60% and can sometimes be as high as 75%, but you shouldn't rely on it being that high.

Is there a catch?

Amazingly, lots of people don't opt for a IVA because they think it's too good to be true. To set the record straight, an IVA is a very real and offical debt solution backed by the Government. It gives you and your creditors a chance of a win-win, and if you did start one, you would not be alone. An IVA is started in the UK about every 13 minutes. IVA Gov.

Where can you get an IVA?

Only an insolvency practitioner can propose and manage your IVA. Insolvency practitioners tend to be part of organisations that provide debt solutions. We feature a number of IVA companies on the site and are happy to recommend the best one for you.

How much does an IVA cost?

This is a really common question in our questions and answers forum. The cost of an IVA should always be nothing to you. Fees are paid to the Insolvency Practitioner that manages your arrangement, but these are not paid directly by you. They're already factored into the installments you're repaying to your creditors. Therefore you could be seen to be getting a free IVA.

IVA pros and cons

The advantages of an IVA are:

You keep your house, although you will need to release as much equity as you can to contribute to reducing the total debt
It’s private – only you, your creditors and your insolvency practitioner know about it
There will be no more letters or phone calls from creditors chasing repayments and interest payments and charges are frozen
You are facing up to your debts and repaying as much of the money you have borrowed as you can afford and you’re on the road to financial recovery

The disadvantages of an IVA are:

You must stay in the IVA for 5 years and keep up the repayments or risk being made bankrupt and losing your home
If you own a house you are likely to have to release any equity you have in it
Your repayments are reviewed and can change to ensure you're paying back as much as you can afford
A record of your IVA will be on your credit file for 6 years. This means your credit rating will be affected for 6 years making borrowing money in the future more difficult and more expensive
Bankruptcy is a real possibility if an IVA does fail for whatever reason

Would you qualify for an IVA?

You've had the IVA explained, and should now find out whether you would qualify for an IVA, click here to try our IVA calculator >>

IVA Application

The process involved in setting up an IVA is as follows:

See if you're likely to qualify for an IVA - try our IVA calculator
Talk to a recommend IVA company to confirm it's your best option
An IVA proposal pack will be sent to your for you to review, sign and send back to your Insolvency Practitioner
The IVA company may make an application to the court for a Interim Order to protect you from action from your creditors
A date for a Meeting of Creditors is set and as long as creditors representing 75% of the value of your debt agree, the IVA will be passed

IVA Questions

If you have any specific question on IVA's you may find the answers in our IVA questions section. Don't forget, if you don't find the answer you're looking for, you can ask an IVA question yourself.