Getting an IVA: Everything You Need to Know

You don’t have to be in arrears when getting an IVA or debt management, you just need to be insolvent. “Insolvent” means you will be unable to pay your contractual payments when they next fall due, this will mean you will be in arrears. You can prove insolvency by doing a financial statement which is a list of your incomings and outgoings for your day to day living and what is left is there to pay to your creditors.

How does an IVA work?

An Individual Voluntary Arrangement (IVA) is a formal arrangement between a person in serious debt and their creditors.

It usually involves making one monthly payment over the term of 5 years (60 months). An IVA firm administers the arrangement and deals with your debts. Any debt you are not able to pay during the arrangement is written off.

It takes the form of a proposal which is put together by a licensed insolvency practitioner (IP) who acts for you.

You will have a long conversation with an IP or their staff and they will draft your proposal and send it to you. When you are happy with it and the IP is happy it is a good offer for the creditors they will summon a meeting of creditors.

This is a virtual meeting – you don’t have to attend, just be by phone.

If 75% by value of those creditors who vote are in favour the arrangement is passed and is binding on all creditors.

IVAs are not suitable for everyone and you need to have all the options explained to you – including the brand new Debt Relief Order (DRO) – so you can make an informed choice.

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How long does an IVA take to set up?

An IVA is an individual contract based on individual circumstances, therefore it is difficult to specify an exact timeframe, but you should allow for at least six weeks. The process involves negotiating with your creditors, on how much they will be willing to accept from you over the lifetime of the IVA, in order to consider your debts cleared in full. All you need is 75% of creditors, by debt value not number, to agree to your proposal and all creditors will be bound by the agreement. Any IVA provider should be able to give you more specific information on their process and timescales.

Is an IVA suitable for me?

To be eligible for an IVA you need to meet certain qualifying criteria. You appear to have enough debt to make an IVA viable; however, you are likely to also need approximately £150 of disposable income per month, which you will be able to comfortably maintain for 5 years.

An IVA is for people who are behind on their repayments and have no hope of paying their debts in full. In other words, you are only able to propose an IVA if you are insolvent, which generally means that you are unable to pay your debts as and when they fall due.

Taking out an IVA will adversely affect your credit rating and should not be entered into on a whim. The IVA provider will charge fees which will be deducted before payment is passed on to your creditors. The best thing will be to seek free debt advice as to whether an IVA or any other option is best for you.

Please note, there is nothing to say that you cannot have vehicles and mobiles in an IVA but you will need to justify why they are needed and that the cost or value is reasonable.

Please note, there are a couple of restrictions placed on you whilst you are on an IVA. For more information, please read our article on IVA restrictions.

How long does an IVA last for?

An IVA lasts for the length of time it was set to run, IVAs can last for 5 or 6 years but some IVAs may only last for a year.

In most cases an IVA proposal to creditors offers a payment for 5 years and when the IVA completes there is no more to pay. The person who entered into the arrangement has no further liability for the debts. In some cases, there is nothing available to pay towards debts each month after everyday bills have been paid but there may be an offer of payment on the sale of a property which may then sell quite quickly and end the IVA or may take a little longer.

If you go through details of your situation with a debt adviser they will be able to see if an IVA is a possibility, how it could be proposed to your creditors and also look at other options for dealing with your debts to ensure that it is the best method for you to resolve your debts.

How much does an IVA cost?

As far as costs of the IVA are concerned, in the vast majority of cases, these are paid for by the creditors themselves and you would have an outline of all of these before the IVA was proposed.

What debts are included within an IVA?

Most debts can be included in an IVA. There are some types of debts you cannot include. These are:

  • Maintenance arrears (ordered by the court)
  • Child support arrears
  • Student loans
  • Magistrates’ court fines

What is the minimum level of debt for an IVA?

We’ve seen IVAs proposed at 10k, but by and large debts of £15k are better dealt with through debt management plans – purely because they are more flexible and easier to obtain. For debts of less than 5k, there are always admin orders although they are far less well known nowadays.

There is no official minimum and some IVA companies may propose IVA’s on less than £12,000. Whether an IVA is proposed is a matter for each company and the Insolvency Practitioner. Factors affecting their decision will include the time required to propose and manage the arrangement, the likelihood of the IVA proposal being accepted, and the revenue gained via the Insolvencies Practitioners fees. These fees are usually taken from your repayments, not you directly.

If you are not happy with your IVA company, please read this article on how to complain.

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How much debt will an IVA write off?

There isn’t any fixed amount or percentage, that can be used to answer this question. It could be that one IVA provides a 25% return to creditors and write off 75% of the debt, another could provide 80% return to creditors and write off 20%. It really depends on the size of the debt and the type of contribution that is possible.

If debts are still accruing interest before the IVA then it could also be said that this future profit to the lender is also been “written off” as it will not be added. This would be very difficult to calculate but all interest and charges stop when the IVA starts.

An IVA allows someone to pay back the amount they can actually afford to pay after living costs have been taken into account and the remaining debt is written off after the IVA has been completed satisfactorily. How much debt is written off depends on each individual set of circumstances.

What is considered as income in an IVA?

A statement of income and expenditure will be prepared in order to see how much available income you would have to pay towards an IVA before negotiations begin with creditors. At this point, the complexities in regards to your car/work situation can be explained. Each IVA is individual to the circumstances of the debtor and it is possible that you can have your car situation taken into account.

It is perfectly acceptable for DLA to be considered income in an IVA, provided care costs have been taken into consideration first. It would only be an excess DLA income (aftercare costs have been deducted) that would be included.

To be eligible for an IVA you need to meet certain qualifying criteria. You appear to have enough debt to make an IVA viable; however, you are likely to also need approximately £150 of disposable income per month, which you will be able to comfortably maintain for 5 years.

Alternatively, you could contact your debt management company and make them aware of the pending changes to your expenditures and they, in turn, should be able to renegotiate repayments to your creditors.

Are benefits counted as income in an IVA?

Child benefit and child tax credit are counted as income when arranging an IVA. However, a child’s DLA is paid in reference to the child’s disability and does not count as extra income for their parents. You are best to speak to a specialist regarding IVAs to make sure they can give you the correct advice.

Can I extend an IVA term?

Most IVA are scheduled to run for about 60 months, I would not be surprised to find that most IVAs don’t actually run for 60 months. 5 years is quite a length of time and it would be unrealistic to expect that for 5 years every payment will go according to plan without any hiccups along the way. Perhaps a loss of income for a while due to ill health, this does not necessarily mean that the IVA has to fail. It can be reassuring to know that, should an emergency arise, it can be extended if needed to allow it to complete satisfactorily. Some IVAs are proposed with a remortgage to take place towards the end of the term; if this is not possible then it may be that 6 years payments are the alternative.

The point to remember would be that extending an IVA only takes place in defined circumstances, they are all written in the initial proposal, terms and conditions and any amendments that may have been agreed at the meeting of creditors. Once the IVA is in place it cannot just be extended.

What is an Interim Order?

An IVA can take between 5 and 8 weeks from the first contact to the creditors meeting where you hope to have your IVA agreed. In the meantime, if your debts are really serious it’s possible that creditors may continue to take legal action against you. This often comes in the form of a bankruptcy petition, or charge on your property. If this is the case then an Interim Order offers the necessary protection. An Interim Order is applied for at your local County Court and once lodged, you are protected from both the commencement and the continuation of any action against you. This allows the IVA application to continue unhindered.

Can I have a second IVA if I had one in the past?

Yes, you can apply for an IVA at any time. Your debt history will have to be explained again – as you know – but there is no rule that says you can’t apply for an IVA because you have had one before.

You will not be able to enter into another IVA if your previous agreement lapsed due to non-payment. You may be able to negotiate repayment plans with each of your creditors or the next step might be bankruptcy. Speak to a money advisor as to the options available, they will support you in drawing up a budget and will contact your creditors on your behalf.

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Do 100% of creditors have to agree before an IVA can go ahead?

As long as creditors who are owed at least 75% of the debt value between them agree, then an IVA will go ahead. All creditors will be bound.

How do I get an IVA and who do I contact?

If you wish to have a look at all of your options to ensure that an IVA is actually the best thing to do when speaking to a debt adviser is the best way to start. Insolvency is a complex area of law and not every situation needs an IVA. Entering an IVA is entering to a legally binding arrangement and it is important that you discuss fully with an impartial adviser before deciding on any debt solution.

An IVA can only be proposed by an Insolvency Practitioner. If you wish to locate one that is local to you, the Insolvency Practitioner Directory can help you. You can also contact any of the free debt advice charities and they should have access to an Insolvency Practitioner if you find that an IVA is not possible they will be able to assist you with an alternative.

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