FAQs Surrounding Pareto IVAs

Individual Voluntary Agreements, or IVAs for short, are a great way of restructuring your finances without the need to go bankrupt. Understandably, people have a lot of questions before they enter into a financial agreement such as this, and rightly so. Any financial undertaking must be explained thoroughly by the provider and you must make sure that you can afford the repayments.

With that in mind, here is a list of questions that Pareto get asked the most when it comes to getting an IVA. The aim of this list is not only to answer these questions clearly with no jargon, but also to set your mind at ease regarding one or two of the more ‘mythical’ aspects surrounding repayments and what your creditors can and can’t do.

What are the major benefits of an IVA?

• An IVA allows you to make one payment per month that is affordable and at a fixed rate.
• As long as you keep up your payments, all legal action action including demanding
• Letters and phone calls from your creditors will stop.
• Regardless of whether all your creditors agree or not, as long as 75% of them approve the IVA then ALL your named creditors are legally bound to honour it.
• Once the IVA is confirmed, all interest is frozen on your debts.
• A smart alternative to bankruptcy where property can be repossessed.
• Typically you can write off half of your debts, but you can potentially write off as much as 70%
• You could be debt free in as little as five years.

What are the main drawbacks of an IVA?

• The biggest disadvantage is that it will adversely affect your credit rating. IVAs typically run for five years but your credit rating can be affected for up to six years.
• You will not be able to apply for credit while the IVA is in place.
• There are certain debts that cannot be included in an IVA, such as fines and court-imposed penalties.
• If you are a homeowner you will be expected to release any equity in your home to pay towards your debts.
• If you come into any money during your IVA it would have to be forfeited to pay towards the IVA.
• If you fail to keep up with your payments then your creditors can backdate any interest owed on the account. Learn more about ending an IVA early if you are wondering about this.

Will I need to change banks?

Not necessarily, but if you have a bank account with a creditor that you owe money to through loans, credit cards or overdrafts then they have the right to close it down. In this case you would have to open a bank account elsewhere.

Most banks will allow you to open a basic account as there is no credit check required. This will allow you to have wages and benefits paid into it and you can set up direct debits and standing orders too. However, you will not be allowed to have an overdraft as an overdraft is seen as a form of credit.

For more information on which banks offer the best basic bank accounts, use the link below to the Money Advice Service. This is a free and impartial service set up by the Government and is a non-profit organisation: https://www.moneyadviceservice.org.uk/en/articles/basic-bank-accounts

What is an Insolvency Practitioner?

An Insolvency Practitioner, or IP for short, is someone who is licensed and authorised to act on your behalf for your IVA. Most IPs are accountants or are insolvency specialists working for accountants. This is a service that Pareto will provide for you. Also check out CreditFix IP Glasgow for another service similar to this.

How much debt do I need to be in to set up an IVA?

The figure can vary and there is no minimum or maximum figure, but most creditors will not grant an IVA to anyone with debts of less than £10,000.

What debts can I include in my IVA?

The kind of debts that can be included are credit cards, loans, store cards, overdrafts and home shopping catalogues. It can also include arrears with household bills such as utilities and council tax. You need to be very careful not to miss anything off as it can be difficult to add it to the IVA once it has been approved.

What debts can’t I include in my IVA?

You cannot include child maintenance arrears, student loans and court-appointed fines.

What is the process of setting up an IVA?

Normally you will need three debts and two different creditors to qualify for an IVA. Once you have a list of your debts you should then contact an Insolvency Practitioner (IP) at Pareto. Your Pareto Insolvency Practitioner will advise you if an IVA is suitable or not for your individual circumstances. If you are not suitable for an IVA they may be able to suggest an alternative route for restructuring your debts.

Your IP will go through your finances with you and work out a repayment plan. Once it has been determined that you are suitable for an IVA and you are happy to proceed they will write a proposal to the court and your creditors with details of your repayment plan. The IP will then call a meeting with your creditors to vote on whether to approve the IVA or not. If 75% of the creditors agree then the IVA will be approved, even those who may have voted against it.

For more information on the process of setting up an IVA, contact Pareto and we will gladly assist you in any aspect of setting up an IVA. Another solution you may be interested in include offering a full and final settlement to your creditors.

Do I have to be in full time employment to enter into an IVA?

No, you don’t. As long as you are earning enough money to make a decent contribution to your debts and still have enough to live off then that is enough for most creditors.

Can my creditors take action against me before the IVA is approved?

Yes, they can. Until the IVA is officially approved you are not safeguarded by its protection. If this does occur, you can speak to your insolvency practitioner to see what they can do to help. Once the proposal has been sent to your creditors, your insolvency practitioner can apply for an Interim Order to stop your creditors taking any sort of action until the process has been completed.

What fees are involved?

You do have to pay for an IVA to be set up. You have to pay an Insolvency Practitioner such as Pareto to set up and maintain the IVA and this can cost anywhere between £1,000 to £5,000. Some practitioners will ask for this upfront before the IVA is set up, but Pareto will incorporate it into your monthly payments.

Once the IVA is approved part of your monthly payment will go to the IP and the rest will be distributed amongst your various creditors. You do not have to pay an extra payment to your IP. All IP fees are different so it pays to do a bit of homework to see who offers the best rates.

How long does it take to set up an IVA?

Each case is completely individual so the time scales can vary considerably. If everything proceeds relatively straightforward and according to the creditors satisfaction, it usually takes between six to eight weeks to set up an IVA.

Is my IVA application likely to be accepted?

In a word, yes. We would not proceed with setting up an IVA if we thought you were going to be rejected for it. There are other financial products on the market if you are not suitable for an IVA, so if you are in the process of applying the chances are extremely good that the application will be accepted.

But what if it IS rejected?

In this extremely unusual circumstance you may be given the opportunity to reevaluate your offer to your creditors. If your restructured offer is still not desirable to the creditors than an alternative method to IVAs can then be explored.

Will the IVA affect my credit rating?

Yes, it will. An IVA will stay on your record for six years and will affect your credit score. However, the chances are that if you are going through an IVA it is reasonable to assume that you will have already had some missed payments which will have already affected your credit score anyway.

Does that mean that I can’t apply for credit for six years?

Once you enter into an IVA you are not able to take out any further credit unless the IP gives you expressed permission to do so. If you take out credit and fail to notify them then the terms of the IVA could be said to have been broken and you may be liable to pay your creditors what you owed them before the IVA, plus any accrued interest.

Will the interest on my debts be frozen?

Yes, it will. As soon as the IVA is approved then the interest on the remaining balance is frozen and your creditors are legally bound to keep it that way. Be advised though, if you do not keep to the terms of the arrangement then the interest can be backdated and you might end up in a worse position than you started in.

Does that mean that I won’t get any more nasty letters or phone calls?

Once the IVA is in place then your creditors are not allowed to contact you with regards to the amount owed before it was set up. It may take a month or two to settle down after the IVA has been approved, but if you do continue to receive these kinds of communications just contact your IP and they will get in touch with them to sort it out.

What do I do if I know I’m not going to be able to make my IVA payment in time?

A huge part of an IVA is making your payments on time. If you don’t then you are breaking the terms and conditions of the agreement and this puts the agreement at risk.

If there is a genuine reason such as an accident or illness then most creditors are sympathetic to this. Just be sure to keep a record of all doctors notes or receipts to prove these circumstances and forward them onto your Insolvency Practitioner at Pareto.

If the situation arises where you just cannot afford to make your payments anymore you need to contact your IP. They will most likely ask you to complete a new expenditure form to see what you can realistically afford and will then submit it to the creditors.

If these situations arise whatever you do, do not ignore it and think it will be okay - contact your Insolvency Practitioner as soon as possible.

What are the other alternatives to an IVA? Would they be better for me?

An IVA is a form of insolvency, and as such it is only suggested if it is the most appropriate form of managing your debts. The equivalent service in Scotland is known as a Trust Deed debt solution, which we can also offer more details on. Let’s go through the various alternatives:

• Bankruptcy is a severe form of insolvency. If you are a homeowner you could lose your house. Some employers will not employ someone who is bankrupt. In addition to this a bankruptcy will stay on your credit file for six years and have severe effects on your ability to attain further credit. We can offer more advice on bankruptcy if you need help with this.
• Another alternative is a debt consolidation loan. This is good for combining small amounts together to make one monthly sum, but you first have to pass for the loan (essentially, it is another debt) and you will have to pay interest on what you borrow.
• Debt management plans are an informal agreement between you and your creditor to make reduced payments towards your debts. This may mean that you have to pay for your much longer than you first anticipated, and because it is informal your creditor can withdraw this option at any time. We can offer more more advice on DMPs if you think this would benefit you.

In short, if an IVA has been suggested for you it is because the alternatives are not suitable for your situation.

What happens when the IVA is completed?

Once your IVA has been completed both you and your creditors will be sent a Certificate of Completion. This confirms that your debts have been paid in full and the creditors cannot contact you for any more money. If there is any debts outstanding at the end of the IVA it is written off and you will be debt free.

The Insolvency Service will update their records to reflect this and you should then send a copy of your Certificate of Completion to the three main credit reference agencies; Equifax, Experian and Credit Call. Three months after this you should request a copy of your credit file from each of these companies to see if the IVA has been removed. If it has not, contact them and asked for it to be updated.