IVA Frequently Asked Questions (FAQ)
IVA Questions Answered
What is an IVA?
You may have heard of an IVA through the internet, from a friend or colleague or even on the TV. But more often than not, many people call us at IVA.net asking "What is an IVA?". An IVA, also known as Individual Voluntary Arrangement, is a legal and government approved method of resolving debt problems. It can sometimes be considered as an alternative for those of you who struggle with debt, but do not want to go bankrupt.
If you are struggling to make your current debt repayments you could be eligible for this scheme.
By showing that your monthly living costs and debt repayments are more than your monthly income we will show that you cannot afford to pay your debts. This is where an IVA can help as you will repay only what you can afford without using money you need for essentials, like your mortgage/rent payments, food and utility bills and other monthly costs.
How long does an IVA usually last?
An IVA usually lasts for five years but it is also possible to complete it in a shorter period, especially if you can produce a partial lump sum. Sometimes, due to unforeseen circumstances, an IVA may need to be extended which is explained in the examples below.
Is an IVA a good idea?
Whether or not an IVA is a good idea for you really depends on your on personal situation. The best way to find out is to speak to an IVA advisor who will determine how an IVA will affect you and if it is a good solution for the circumstances you are in. Only then will you know if it is both feasible and optimal. Don't rush in to anything. Speak to people already in IVAs on various forums and they will help guide you.
The main stipulations are that you must be resident and have debts in England, Wales, or Northern Ireland and your total debt must atleast be £12,000 upwards. You will need some sort of stable regular income. For residents of Scotland we can recommend a practitioner who can set up a Standard Trust Deed, which is the Scottish equivalent to an IVA.
How much does an IVA cost?
When you propose an IVA to your creditors, it is important that you understand all of the costs and fees. This can vary quite differently with different IVA companies. All of your costs and fees will be laid out in your IVA Proposal. You will offer to re-pay a percentage of the debt via monthly installments of generally 60 months. The sum suggested is based on what you can afford to pay. The Insolvency Practitioner (IP) will help you figure out this number.
This means that monthly re-payments vary on case-by-case basis and depend on what assets you have and much money you have available after living expenses have been deducted from your monthly income.
There does tend to be a minimum amount that creditors will accept as part of the IVA proposal. Creditors will most likely reject any proposal that pays them less than 20-25% of what they were originally owed.
This leads to another cost that you should be wary of. Most companies charge a fee for setting up your IVA Proposal. So, where does this leave you if the proposal fails or is rejected. Even more out of pocket! There are very few companies that do not charge any upfront fees (ourself included) for setting up your IVA proposal, so if it fails, or is rejected, you are not out of pocket, which we believe to be much more ethical when dealing with entering a debt solution.
It is the creditors who determine the IVAs costs and fees in the Creditors Meeting. The IVA costs come out of the affordable monthly payment that is set in your IVA proposal. If the IVA Proposal is accepted the Insolvency company or IP then takes the agreed amount from the IVA payments each month, so there are no extra costs on top of the monthly payment.
Will my creditors agree to an IVA?
Whether or not your IVA is accepted is determined in The creditors meeting. In order for the IVA to be accepted, atleast 75% of your creditors have to vote in favour of it. The creditors may suggest or propose changes to the IVA in order to accept the proposal, but you can choose whether or not to accept these changes before proceeding.
We have a good reputation with the credit houses, so will only put forward IVA proposals that we are optimistic about getting approved. We have a very high success rate. On the rare occasion where your proposal might be rejected, we have other options that you can look into, even temporarily.
How will an IVA affect my Business?
An IVA can be a good choice over Bankruptcy if you are self employed. If you stick to the terms of your IVA, you can carry on running your business under your sole control with no outside interference. You do not have to cease trading. Or if you are in a partnership, it does not have to be dissolved and if you are a company director you can continue to be one.
Bear in mind that your name will be on the Online Insolvency Register and an IVA will affect your credit rating.
How does an IVA affect my credit rating?
If you do an IVA, there are no doubts that your credit rating will be affected. This can be a scary thought for someone, but if you bear in mind that you are struggling with debt, then chances are your credit rating will be affected anyway and if you don't address the situation now, it could eventually lead to bankruptcy. Bankruptcy will remain on your credit file for a long period of time, but with an IVA you are showing that you are both willing and trying to address and pay for your debts and on completion your credit rating will eventually repair and return to normal.
During an IVA you are not allowed to take out any further unsecured credit such as credit cards, store cards, personal loans, etc. This is a standard stipulation of an IVA and a note will be put on your credit file alerting lenders to this fact. This note will generally remain on your credit file until one year after the duration of the IVA. While this record is on your credit file many lenders will choose either to lend at a high interest rate or not at all.
What happens when my IVA is complete?
At the end of an IVA process you will receive a Certificate of Completion from the supervisor / Insolvency Practitioner, who will also inform your creditors. Normally this will happen within three months of the final payment. A copy of this will also be sent to the Insolvency Service for their records, so the Insolvency Register can be updated and your details removed. The Credit Reference Agencies will also need notified which is your responsibility. Doing this is an important step in the process of repairing your credit rating.
What if I default on my IVA payments?
If you fail to meet the terms of your IVA by defaulting on payments then the supervisor of the IVA can begin bankruptcy proceedings against you. The best thing to do is get in touch with your Insolvency Practitioner and explain why your situation has caused or is going to cause you to miss a payment and see if anything can be done.
Can I set up an IVA if a Bankruptcy Order has been made against me?
If the Bankruptcy hearing has yet to take place than is it possible to set up an IVA. The Insolvency Practitioner may need to issue an Interim Order to halt the bankruptcy proceedings while the IVA proposal is put together. If the Bankruptcy Order has been issued already, doing an IVA is made somewhat more difficult as it's harder to reach an attractive proposal with the creditors, as bankruptcy costs must be taken into account on top of the costs of setting up an IVA; but it is not impossible.
Will I have to sell my house if I do an IVA?
Unlike with bankruptcy, an IVA will not force you to sell your home. You may be asked to release some of the equity in your property (if you have any), at the end of your IVA, to pay your creditors though.
What about any other assets of value?
If you have other valuable assets, these will be assessed on a case-by-case basis. It is usually possible to exclude a car of a certain value on the basis that you require it travel to work. There are different requirements if your car is financed on a Hire Purchase agreement.
What if I come into money during my IVA?
In IVA terms, if you come into a lump sum of money during the term of the IVA, this is known as a financial windfall. It is normal for IVA agreements to contain a windfall clause, meaning that assets such as lottery winnings, bonus payments, inheritance, and gifts must be declared to the Insolvency Practitioner and paid in to the IVA for the benefit of the creditors.
If your financial windfall is a reasonable sum of money, you may be able to settle your IVA full and final, so you are able to finish making payments and your IVA will be completed early.
Would I have to change my lifestyle if I entered into an IVA?
An IVA is a very serious proposition for people that really want to get out of debt, but providing your lifestyle is not excessive (which it really shouldn't be if you are struggling with debt repayments), you will not have to change it much just because you entered an IVA. There are specific guidelines to ensure that you/your family will have a reasonable standard of living. When you first enquire about an IVA, an advisor will run through a financial statement with you, whilst considering these guidelines, in order to determine a realistic lifestyle budget.
You will be expected to live within this budget, which is why it is very important that you consider all of the normal household living expenses you can think of and include them in your financial statement. If you think you are going to struggle with your budget, then chances are you haven't forumlated your budget correctly or thought of everything. The IVA advisor will help you cover every single expense, so don't worry if you've missed something.
You will have to learn to live without using credit cards, loans, store cards etc...
Can I complete my IVA earlier than the agreed time?
It is possible to complete an IVA before the 60 months are up, if you get a windfall of money, which provides enough funds to pay off the amount left on your IVA.
If this becomes an option your Insolvency Practitioner can arrange another Creditors Meeting to seek approval of your offer of a lump sum early settlement, which will lead to an early completion of the IVA arrangement. Most creditors will agree to this because it means they will be getting paid much sooner than the original terms..
I am on Income Support. Do I qualify for an IVA?
No. If you are on Income Support you cannot do an IVA. When on Income Support you cannot guarantee creditors that you will be able to fulfill the payments for the term of the IVA, as your eligibility for income support could change or it could be withdrawn. You might want to consider either bankruptcy or an informal repayment plan such as Debt Management.
I am a professional. If I enter an IVA what will happen with my accreditation?
Professional titles includes people like lawyers, bankers, doctors etc... Unlike Bankruptcy it is possible for someone in a professional position to do an IVA.
The best way to make sure is to check with the professional body of which you are a member to see if undertaking an IVA will impact your accreditation. In certain professions, undertaking an IVA can be contrary to the conditions and terms in your employment contract so you should insure that this is not the case.
How do Insolvency Practitioners make their money?
Insolvency practitioners take their commission fee from your creditor’s payments. This means that you are not directly paying for the service, your creditors are. The amount the trustees get varies between practitioners and the size of your IVA.
We work with one of the UK's largest debt management companies who will advise you more on whether an IVA is the best solution for you or not.
Why would I Fail An IVA?
You will fail an IVA by not keeping up the monthly repayments that are agreed at the start of your process. This is why it is particularly important to be realistic at the start of your IVA and make sure you list every possible expense you have.
Losing your job or income can result in failing an IVA. When your financial situation changes you are obliged to contact and discuss it with your Insolvency Practitioner who will take a look at the options available and make suggestions accordingly.