What is an IVA and how does it work?

Define Individual Voluntary Arrangement:

IVA is a legal agreement between the creditors and borrower of unpaid loans. IVA stands for Individual Voluntary arrangement. In UK, a new legislation was introduced in 1986 to write off debt with IVA. The primary objective of IVA Debt Advice is to save the defaulter from bankruptcy by enabling them to make affordable repayment of outstanding loans. Consequently, after the agreement is set up the borrower is required to pay fixed monthly instalments and thus, avoids bankruptcy.

How does the process work?

The total amount paid through instalments is a percentage of the total indebted amount that in most cases needs to be repaid over a span of 5 years. Typically, an IVA reduces the total debt by 20%-80%. Accordingly, your monthly instalments are decided which takes into account your current financial condition so the instalments remain affordable. If you are in Scotland, a similar solution would be to apply for a Trust Deed, and you'll get the same kind of help.

The IVA is processed by an Insolvency Practitioner (IP) who acts on your behalf during the whole process. IP will help you with putting forward a reasonable proposal to the creditors and negotiating the terms with them.

It is important to take note that creditors, crediting at least 75% of debt value must agree to IVA. Otherwise, an IVA cannot be established. Once they agree and you are able to make the payments as required, you are now free. As a legal binding, creditors cannot demand you for more money.

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How Long Does An Individual Voluntary Arrangement Last?

In a normal case, IVA lasts for five months during which you are required to pay a fixed amount as dictated by your agreement. Though on your credit file the IVA will last for another year (6 years in total), it will be removed for good from there afterwards.

Special circumstances where IVA time limit varies:

• If you are unable to re-mortgage your property at the end of five years, your IP will extend the IVA for another year.
• If you missed the payments and were unable to adjust it in the span of five years, your IP will extend the IVA time frame.
• If you manage to pay a lump-sum amount, your IP can reduce the span of your IVA.

How long does an IVA last on your credit report?

If the payments are made regularly and an IVA is fulfilled in five years, it will remain on your credit report for six years. The time starts from the moment IVA was originally established. If the time frame extends, IVA will appear on your credit report until you complete your payments. However, in an instance, where you pay the IVA before five years, it will still appear on your credit report for the same time (6 years).

Does IVA affect mortgage?

On IVA, the chances of getting a new mortgage are pretty bleak.

IVA ensures that you don’t have to sell your home to make the payments. However, you may be required to remortgage your property and pay the amount in your IVA payments. The percentage of your property remortgage depends on the equity in property.

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Another great way of deciding on what to do is to compare the pros and cons of an IVA.

Without further ado, here are the pros and cons of an IVA:

Pros of IVA:

1. You are only paying a part of the total amount you owned.
2. There are no interests added beyond the point you applied for an IVA
3. Monthly installments make the repayment process affordable.
4. Creditors are still getting more money than they will if you went bankrupt.
5. IVA is a government backed scheme to clear debt and once you are done with the payments, no one can force you to pay more.
6. There will be no more stressful calls from creditors.

Cons of IVA:

1. It will adversely affect your credit rating for the next 6 years. Once you will be done with the six-year span, IVA will be gone from your credit file for good.
2. IVAs lead to tight budgets but it is still manageable to make the monthly payment as well as make the ends meet.
3. During an IVA you cannot take the debt of more than £500.
4. IVA will be listed on the Insolvency Voluntary Register.
5. In very rare cases, IVA can affect your employment contracts. Check with your HR department beforehand.

What is Qualification Criteria For IVA?

Some of the important criteria for qualification include:

1. Your unsecured debt amount should be at least £7,000. Amounts less than this are less likely to be entertained under IVA. There are other government debt help schemes for such circumstances.
2. IVAs are best-suited for people with a regular income even if it’s low.
3. Only unsecured debts like payday loans, credit card loans or personal loans can be settled under IVA. Secured loans like mortgage and student loans still have to be managed separately.
4. For a quick evaluation, check your chances for getting an IVA through this FREE online IVA calculator. It will send the estimated status straight into your inbox. If you are not eligible for IVA, there are other government debt help schemes. The best solution is to talk to our debt adviser. They will suggest you a solution that fits well with your current situation.

Apply For an IVA:

It is important that before applying for IVA you are aware that what lies ahead of you. They are a great way to clear your debts but as we have already mentioned, there are downsides to it too. Thoroughly go through the process and then make the decision.

You can also call at individual voluntary arrangement government helpline for questions and queries. A better and quicker alternative is to get in touch with best Debt Advice Company in the UK. The advisors will not only suggest the suitability of agreement for you but in case of a misfit, they will guide you through other available option.

If you have finally made the decision to apply for an IVA, you will be required to submit the details of your finances to the IP. He will take into account your income and expenditures and will help you draft a payment proposal.

Once the proposal is prepared, it is then taken to creditors. Negotiating with creditors is a tricky part and this is where your IP will strive to get the best deal on the table. For an IVA to be established, at least creditors owing 75% value should vote in the favour of the proposal. The first step in the application process is to provide details of your finances and assets. An adviser will do an income and expenditure to find out how much you can reasonably afford to pay back to your creditors. They will also check you qualify for an IVA and whether this debt solution is the best option for you. If you have already failed IVA at final review, talk to a debt adviser. Know your options and then make an informed decision.

Some other options you may want to consider include:

What happens at the end of an IVA?

The end of an IVA means that you have now cleared all your unsecured debts. None of the creditors can contact you in future, asking for more money. The credit report will be affected for a small span of time (normally 12 months). After that, IVA will be removed from your credit file and things will be back to normal.