An Individual Voluntary Arrangement (IVA) is a debt solution that can provide a lifeline for those struggling with unmanageable debt.
However, it’s crucial to understand the long-term implications of an IVA, particularly its impact on your credit file.
This article provides a comprehensive guide on how long an IVA stays on your credit file and the implications .
Understanding an IVA
An Individual Voluntary Arrangement (IVA) is a formal debt solution that you can use if you are unable to repay your unsecured debts in full.
An IVA is a legally binding agreement between you and your creditors, which provides a structured plan for repaying your debts over a set period, typically five years.
The IVA process begins with an assessment of your financial situation. This includes your income, your living costs, and the total amount of debt you owe.
Based on this information, an Insolvency Practitioner (IP) – a legal professional who is authorised to set up IVAs – will work out a repayment plan.
This plan is designed to be affordable for you, taking into account your income and necessary living expenses.
Once the repayment plan is set up, you will make regular payments to the IP, who will distribute these funds among your creditors.
During the term of the IVA, all interest and charges on your included debts are frozen, and your creditors are not allowed to demand additional payments from you.
An IVA is designed to help you avoid the severe consequences of bankruptcy. However, it’s not a suitable solution for everyone.
It requires a steady income to maintain the regular repayments, and it demands a high level of financial discipline.
It’s also worth noting that an IVA is a public record, which means it can affect your reputation.
One of the key benefits of an IVA is that once it is successfully completed, any remaining debt included in the arrangement is written off.
This means that you can start afresh without these debts hanging over you.
However, an IVA comes with some significant considerations. It will have a long-term impact on your credit rating, making it harder to get credit in the future.
It can also affect your ability to get certain jobs, especially in finance and law. Therefore, it’s essential to seek professional advice before deciding to go ahead with an IVA.
The Impact of an IVA on Your Credit Rating
An Individual Voluntary Arrangement (IVA) can significantly impact your credit rating, and it’s essential to understand this before entering into such an agreement.
When you enter into an IVA, it is recorded on the public Insolvency Register, and a note is made on your credit file.
This note will stay on your credit file for six years from the date the IVA is approved, even if you manage to pay off the IVA in less time.
This record on your credit file can lower your credit score, which is a numerical representation of your creditworthiness.
A lower credit score can make it more difficult for you to obtain credit in the future.
This includes not only loans and credit cards but also mobile phone contracts, car insurance paid monthly, and in some cases, even rental agreements.
While you’re in an IVA, you’re usually required not to obtain more credit without the permission of your Insolvency Practitioner.
This restriction can further limit your access to credit.
However, it’s worth noting that if you’re considering an IVA, your credit rating may already be affected due to missed payments or defaults on your existing debts.
In this context, the additional impact of an IVA might be less significant.
Once the IVA is completed and the record has been removed from your credit file, you can start rebuilding your credit score.
This process can take time and requires a consistent history of responsible credit use and on-time payments.
It’s also beneficial to check your credit report regularly to ensure all the information is accurate and up-to-date.
How Long Does an IVA Stay on Your Credit File?
An Individual Voluntary Arrangement (IVA) is a significant financial commitment that has long-term implications for your credit file.
Understanding these implications is crucial when considering an IVA as a debt solution.
From the moment an IVA is approved, it is recorded on your credit file.
This record remains in place for six years from the date of approval.
This six-year period applies regardless of whether you complete the IVA early or it runs its full course.
For example, if you enter into an IVA and manage to complete it in five years, the record will still remain on your credit file for an additional year, making a total of six years from the date of approval.
Conversely, if your IVA lasts for six years, the record will remain on your credit file for six years from the date of approval, effectively disappearing from your credit file as soon as you complete your IVA.
If you complete your IVA early, the record on your credit file will be marked as ‘complete’ or ‘settled’.
However, if your IVA is terminated for any reason, such as failing to meet the agreed payments, it will be marked as ‘failed’.
This could have further negative implications for your credit rating.
It’s important to note that while the IVA is on your credit file, it can make it more difficult to obtain credit.
Lenders checking your credit file will see the IVA and may consider you a higher risk, which could result in your application for credit being declined or you being offered less favourable terms.
Once the six-year period has passed and the IVA is no longer on your credit file, you can start rebuilding your credit rating.
However, this can take time and requires careful financial management. It’s also worth noting that different lenders have different criteria, and some may ask about previous IVAs even if they are no longer on your credit file.
Life After an IVA
Life after an Individual Voluntary Arrangement (IVA) can be a time of financial rebuilding and fresh starts.
However, it’s important to understand that the journey to financial recovery may take time and requires careful planning and discipline.
Once you have completed your IVA, any remaining debt included in the arrangement is written off.
This means that you are no longer obligated to make payments towards these debts, freeing up your income for other purposes.
However, the record of the IVA remains on your credit file for six years from the date of approval, which can affect your ability to obtain credit during this period.
After the IVA has been removed from your credit file, you can start taking steps to rebuild your credit score.
This involves demonstrating to potential lenders that you can manage credit responsibly. Here are a few steps you can take:
Regularly check your credit report
Ensure that all the information on your credit report is accurate and up-to-date. If there are any errors, contact the credit reference agency to have them corrected.
Pay your bills on time
Regularly paying your bills on time shows lenders that you can manage your finances responsibly.
This includes not just credit card and loan payments, but also utilities, rent, and mobile phone bills.
Consider a credit-builder credit card
These cards are designed for people with poor or no credit history.
They usually have a low credit limit and high interest rate, but using one and paying off the balance in full each month can help to improve your credit score.
Limit applications for new credit
Each time you apply for credit, it leaves a ‘hard search’ on your credit file, which can lower your credit score.
Try to limit applications and only apply for credit you are confident you can afford and are likely to get.
Stay within your credit limits
Regularly exceeding your credit limits can indicate to lenders that you’re not managing your finances well.
Try to keep well within your limits and aim to pay off the balance in full each month.
Register on the electoral roll
This can improve your credit score as it provides proof of address and makes you appear more stable to lenders.
Remember, rebuilding your credit score is a gradual process and won’t happen overnight. It requires a consistent history of responsible credit use and on-time payments.
With time and discipline, however, you can improve your credit score and increase your chances of being approved for credit in the future.
Other Considerations Regarding an IVA
An IVA can also impact your ability to obtain a mortgage or car finance. Lenders may see you as a high-risk borrower due to the IVA on your credit file.
However, your chances of getting approved improve once the IVA is completed or settled.
Similarly, if you owe money to your bank, they may exercise ‘the right to offset’, which means they could take money directly from your account to pay your unpaid debts.
In such cases, you may need to switch banks to protect your income.
Seeking Professional Advice
Considering an IVA is a significant decision that should not be taken lightly. It’s always advisable to seek professional advice to understand all the implications fully and potential alternatives.
Debt management companies, financial advisors, and insolvency practitioners can provide valuable insights and guidance.
They can help you understand the full range of debt solutions available and assist you in making an informed decision about your financial future.
An IVA can be a lifeline for those struggling with unmanageable debt, providing a structured and legally binding way to pay off creditors and avoid bankruptcy.
However, it’s important to remember that an IVA is not a quick fix. It has long-term implications, including a six-year mark on your credit file, which can affect your ability to borrow.
Despite these challenges, life after an IVA can be a time of financial rebuilding and fresh starts.
With careful budgeting, responsible financial management, and perhaps some professional advice, you can gradually rebuild your credit score and work towards a more secure financial future.