If you’re struggling with unaffordable debt and looking for a formal solution to help you simplify your repayments, an IVA could help you regain control of your finances and make a fresh start.
However, even if you’ve done your research, finding a company to help you navigate the IVA process can be easier said than done. There are hundreds of debt-help companies out there, but not all of them hold the proper accreditation to carry out insolvency solutions and some might demand large fees upfront.
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What is an IVA?
An Individual Voluntary Arrangement (IVA) is a legally binding agreement between you and the people you owe (your creditors) to repay your unaffordable debt through a repayment plan you can comfortably afford over a fixed period. They are available in England, Wales, and Northern Ireland.
Most IVAs last five years, during which time your creditors won’t be able to contact you or take legal action against you. You will have to make monthly payments, but they will be worked out based on a review of your household bills and living costs to ensure they’re affordable for you.
IVAs can last longer if you fall short of your repayment amount by the end of the five years and can be completed sooner if you can afford to pay off your remaining debt with a lump sum. Once you’ve made your final payment, any remaining debt not repaid through the IVA will be written off.
Under the Insolvency Act (1986), an IVA can only be set up and managed by a licensed Insolvency Practitioner (IP). They will help you complete your application and act as a third party between you and your creditors so you don’t have to deal with them harassing you or asking you for payment.
An IVA can be used to deal with most unsecured debts, such as credit cards, personal loans, utility bills, overdrafts, catalogues, council tax, and income tax. However, certain debts like court fines, student loans, and child support can’t be included in an IVA.
How does an IVA work?
Knowing how an IVA works can help you kickstart your repayment journey with confidence. We’ve provided a brief introduction to the IVA process below:
Meet with a Licensed Insolvency Practitioner
The first step in the IVA process is to meet with an Insolvency Practitioner authorised by the Insolvency Practitioners Association (IPA). This can be done by reaching out for an IP directly or seeking debt advice from a debt help company and applying through them.
They will carry out a full review of your financial situation to ensure an IVA is the most suitable debt solution for you and confirm your monthly payments and budget are within the realm of what you can realistically afford.
Complete your IVA proposal
Once your Insolvency Practitioner has gathered all the necessary information, they will work with you to complete your IVA proposal which you must thoroughly read over and sign.
They will then submit your IVA proposal to your creditors for approval to ensure they are happy to proceed with your arrangement as per the proposed terms and conditions.
Await decision from creditors meeting
When your creditors receive your proposal, a virtual creditors meeting will take place. This isn’t actually a meeting as such, it’s essentially a timeframe of up to 28 days that your creditors are given to vote on whether or not they agree with your IVA.
For your IVA to be approved, 75% of your creditors by debt value must agree. Even if some of your creditors reject your proposal, it will still go ahead with them included as long as the owners of 75% of your total debt agree.
Start your IVA
From the date your IVA is approved, all interest will be frozen and your creditors will be instructed to stop contacting you about the debt.
Your first affordable monthly payment will usually be due within 30 days from the date your IVA is approved.
How much debt do you have?
Do I qualify for an IVA?
Before applying for an IVA, it’s important to check if you’re eligible.
The main eligibility criteria for an IVA are as follows:
- You live in England, Wales or Northern Ireland (Scotland has a similar solution known as a Trust Deed)
- You owe money to two or more creditors (an IVA won’t work if you only have one creditor)
- You have significant debt (there is no minimum debt level required for an IVA but it’s recommended to have at least £6,000-£10,000)
- You have sufficient disposable income (you should be able to afford at least £100 a month towards your debt)
- You don’t work in financial services, accountancy, or law (you might be prohibited from having an insolvency solution if your job involves working with other peoples’ money)
IVA eligibility criteria can differ between providers. A debt advisor should be able to review your financial situation and determine whether an IVA is the best solution for you or if another option would be better suited to your circumstances.
Your IVA can be adapted if your financial circumstances change, but there are some key eligibility criteria you should meet to be accepted.
How does an IVA affect me?
An IVA can guide you towards financial stability but it can affect you in many other ways. We’ve outlined the different aspects of your life that can be affected by an IVA below:
Your job
It’s normal to worry about how an IVA might affect your ability to get a job or, more importantly, your ability to keep your current job. However, in most cases, an IVA will have no impact on your job.
The only time an IVA could threaten your job is if your role involves handling other people’s money (e.g. financial services, accounting, and law). To find out for certain, check the terms and conditions of your employment contract.
Your home
Your home will typically be safe during an IVA and you should be able to continue living in the same property as normal. Towards the end of your IVA, you’ll be asked to release equity and put the money towards paying off your debt if your total equity equals £5,000 or more.
It can be extremely difficult to get a mortgage while you have an IVA on your credit file, but it can be easier with a specialist lender.
Your assets
While you might be required to disclose your assets during your IVA, you are not legally required to sell or surrender them. However, if you have assets that your creditors deem to be of unnecessary worth, you might be advised to sell them and put the money towards debt repayment.
It’s important to note that you’ll never be forced to sell items you need for daily life with an IVA. This includes clothing, furniture, white goods, televisions, mobility aids, and children’s items.
Your credit rating
When you enter into an IVA, it will be added to your credit file for six years. During this time, your credit score will be negatively affected and lenders will be able to see that you’re in a debt solution which will impact your ability to obtain credit.
The good news is, once you’ve successfully completed your IVA, your credit score will gradually improve and you’ll be free to take steps to improve your financial life (e.g. by registering to vote and paying your bills on time).
What should I consider when looking for the best IVA companies?
When considering an IVA, it’s important to compare IVA companies so you don’t just go with the first one you find. After all, you’ll be locked into a legally binding agreement with them for at least five years.
Here are the main things you should be on the lookout for when searching for the right IVA company for you:
Reputation
An IVA company’s reputation is key in determining its reliability and, more importantly, its ability to help you deal with your debt.
Any reputable IVA company will have a full history of customer reviews on independent review platforms. Be sure to read both positive and negative reviews to get a full picture of what customers think and pay attention to how the company responds to negative feedback.
Circumstances
Some IVA companies specialise in arrangements for individuals who have special arrangements (e.g. self-employed, poor credit, interlocking IVAs). Therefore, what you should look for in an IVA company depends on your unique circumstances.
When you first reach out to an IVA provider, it’s important that you clearly outline your financial situation and make it clear if you have any special requirements. By knowing how much debt you have and how you want to repay it, you can save time in finding the best IVA company for you.
Cost
Every company that offers IVAs as a debt relief option should be transparent about any upfront fees involved. There are only two IVA fees involved after a IVA has been finalised, the nominee’s fee and the supervisor fee, both of which come out of your monthly contributions to your creditors.
Some companies charge other IVA costs, but fees can differ between providers so it’s important to find out this information before making a final decision.
Advice
Reputable IVA companies provide advice on all debt solutions, even the ones you’re not eligible for. This is to ensure you’re aware of all your options and can make an informed decision on how best to deal with your debt.
If it seems like an IVA company is pushing you into a certain solution or advising you against a solution that you qualify for, they might not have your best interests at heart and should be avoided.
Which warning signs should I look for when searching for an IVA company?
When looking for an IVA company, it’s important not to overlook things that don’t sound right or that perhaps sound too good to be true. This can prevent a situation where you find out later that your arrangement isn’t all it seems and your IVA fails.
Here are some of the key warning signs you should be on the lookout for when searching for an IVA company:
Upfront fees
Any IVA company charging upfront fees before they have even looked at your financial situation should be avoided. A reputable company will provide free advice to allow you to assess your options before making an informed decision.
IVA fees are also integrated into your monthly payments after your arrangement has been approved, so you should never be asked to make separate payments or pay anything over and above what you owe.
Definitive claims
If an IVA company promises to write off 100% of your debt or offers low IVA payments without looking at your income and expenses, you should be wary.
Making unrealistic promises can increase an IVA company’s failure rate, which will only lead to disappointment in the long run – that’s if your IVA proposal gets approved by your creditors in the first place.
Avoiding questions
An IVA is a long-term commitment to dealing with your unaffordable debt and improving your financial future. Therefore, any company offering IVAs should be able to answer any questions you have about your arrangement.
If a company is being evasive or dismissive of key questions, such as the potential cons of an IVA or how the company is regulated, it suggests that they might be trying to omit important information.
Poor reviews
The most important indication of a reliable IVA company is customer feedback. Before agreeing to work with an IVA company, make sure to read both negative and positive customers reviews on independent review platforms as well as their own website.
Look for common complaints and pay close attention to how the company responds. If a firm is unwilling to admit to a problem or chooses to ignore it, this might imply that they are a bad IVA company and you might run into problems if you were to enter into an arrangement with them.
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Where can I get further IVA advice?
An IVA can help you deal with your debt burden in a way that works for you, but it’s not a decision that should be made lightly. It’s important to review all the options available to you before making a final decision.
If you’re considering an IVA but want further advice before you proceed, don’t hesitate to reach out for free debt advice from a debt help organisation. Whether you’re deemed a suitbale candidate for an IVA or guided towards other financial help, you can be confident you’ve taken the right step towards a debt-free future.
There are also several debt charities available to give free financial advice. This can help you know where to turn and allow you to review all available options, including Debt Relief Orders (DROs) and Debt Management Plans (DMPs).
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Conclusion
An Individual Voluntary Arrangement (IVA) is a formal debt solution that allows you to consolidate your debt into monthly payments you can reaonsably afford. However, due to the many IVA companies available, it can be difficult to choose the right one for you.
When looking around for an IVA company, pay close attention to its reputation, your circumstances, the costs involved, and the advice given. By having a well-rounded picture of IVA companies, you can be confident you’re making the right decision to deal with your debt.
If an IVA company is asking for upfront fees, making definitive claims, avoiding key questions, or has poor reviews, it might be worth looking elsewhere for a more reputable firm.
