What Is An IVA And How It Can Help

What Is An IVA And How It Can Help

What Is An IVA?

An Individual Voluntary Arrangement, also known as an IVA, is a formal and legally binding agreement between you and your creditors. The aim of it is to help you pay back your debts over a set period of time. Once the IVA has been approved, it is a legal commitment and each party must stick to it.

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    Why Would I Need an IVA?

    Many people can benefit from putting an IVA in place. It’s a popular debt solution which can help you to regain control of your finances.

    Proposing an IVA could be a good option for you if:

    • You can’t afford to pay total contractual repayments of your debts, but you can afford a monthly repayment
    • You owe debts to several creditors
    • You want to repay as much of your debt as you can over a set period of time.

    How Does An IVA Work?

    An IVA is set up and supervised by a qualified person, called an insolvency practitioner. This person will deal with your creditors on your behalf so you don’t have to. Moreover, this will last for the entire length of the arrangement.

    If you decide to go ahead with an IVA, you will work out a repayment plan with your insolvency practitioner. Depending on your circumstances you may propose to pay back your debts in monthly payments, or as a lump sum, or both. Your payments are based on an amount you can reasonably afford and your creditors will need to agree to it.

    Any repayments are paid directly to your insolvency practitioner. They will then distribute the money to your creditors in line with the approved terms and conditions of your IVA, so you are only dealing with one person.

    In order for an IVA to be approved 75% or more by value of your creditors who choose to vote must vote in favour of the Proposal,

    What Are The Fees On An IVA?

    As an IVA can not be proposed or approved without the Insolvency Practitioner, there are fees for the arrangement. These fees vary depending on the insolvency practice and must also be approved by your creditors.

    There are three categories of fees, the Nominee fee, Supervisors fees and costs or disbursements. The Nominee fee is to cover the cost of the work involved in helping you draft your poropsal and convene the meeting of your creditors. Supervisor fees are for the ongoing supervicon of the IVA over its approved term. Cost or disbursements costs which are incurred in order to supervisor your IVA, such as a statutory insurance called a bond.

    The fees could be high, relative to the amount you have to pay back through the IVA. Remember, part of your repayments will be kept by the insolvency practitioner to pay for their fees. Therefore, you should seriously think about whether or not an IVA is the right option for you.

    IVAs are most commonly proposed to last 5 years although this is likely to be longer if you own a property.

    How Can An IVA Help?

    Creditors cannot pursue you for payment whilst the IVA is in force, you are protected from them taking any further enforcement action.

    You only have one monthly payment to make to the Insovency Practitoner, you do not need to juggle making payments to multiple creditors.

    An IVA is not a quick solution. However, the length of the arrangement gives you time to make manageable payments and you will also have a focus on getting rid of your debt.

    What Are The Risks Of An IVA?

    There are some risks with an IVA and it’s important to know what they are. For example, if your circumstances are likely to change in the short term, an IVA might not be right for you.

    If you’re unable to keep up with the payments, then an IVA could fail. If this happens your creditors will be able to take action against you. In some circumstance they could make an application to court for you to be made bankrupt.

    As well as this, your creditors could reject your IVA proposal. If this happens, you’ll have to find another debt solution that works for you. However, you may still have to pay fees to your insolvency practitioner if the IVA proceedings are already underway.

    How To Choose An Insolvency Practitioner

    If you want to look further into proposing an IVA, the next step is to choose an insolvency practitioner to work with.

    Many insolvency practitioners offer an introductory meeting for free or at a reduced rate, to discuss whether or not an IVA is actually the right option for you. In addition it may be beneficial to look for a insolvency practioner who will not charge you for the work done if your IVA is not approved.

    Only an authorised insolvency practitioner can act as Nominee and Supervisor of an IVA. In the UK, you can find a list on gov.uk/find-an-insolvency-practitioner.

    With this in mind, you don’t need to use a debt management company to get an IVA set up. Some companies will charge you a fee, then simply refer you to an insolvency practitioner. However, if you do decide to use a debt management company, make sure they don’t charge extra fees on top of the practitioner’s fees, or you could be worse off.

    Interest And Charges On An IVA

    With this in mind, it’s worth understanding that your IVA will accumulate interest and charges the whole time it is in place. So make sure you do your research into what companies are charging so that you can make a good choice. For IVAs that go ahead, any interest and charges add on to the amount that you owe.

    How Long Does An IVA Last For?

    An individual voluntary agreement can last for a period of up to 5 years; however, many can last longer than this. The proposal should state how long your plan will last and what happens at the end. If your IVA is successful, it’s likely to finish when you pay off most of what you owe.

    Meanwhile, you can extend your IVA once for up to 12 months. This happens if your IVA company thinks it will benefit all your creditors. At the end of this period, any money left in your trust account will either go back to you or split between your creditors.

    What Happens If I Can’t Make The Repayments

    Even after arranging your plan, you may be struggling to make your repayments on time. If this is the case, your IVA company will write to you and warn you of this. Notably, if a payment is more than 14 days late then they can take action against you. This could include making an application to have you declared bankrupt.

    So if you find yourself in this position, through circumstances beyond your control, speak with your IVA company as soon as possible. They can assess your situation and offer help and advice. Then, if you then need time to come up with a repayment plan, you might be offered an IVA reprieve. However, this is not always possible.

    What Happens Next

    After you have chosen and met, usually be telephone consultation, with your insolvency practitioner or their staff and agreed to enter an IVA, you will have another meeting (again usually by telephone) to formally begin the process.

    You’ll need to send or take paperwork with you including recent bank statements, proof of any assets you own, details of any secured and unsecured debts and other financial information. Your practitioner will tell you exactly what documents you need to bring or send.

    It’s also a good idea to prepare a budget listing your monthly income and spending. This helps your practitioner to work out what spare income you may have per month.

    Remember, you must be honest about your circumstances. If you withhold any information, you might end up with an IVA that is too difficult to stick to, which could then fail. Furthermore, it is a criminal offence to deliberately withhold or falsify information in order to get an IVA approved.

    Conclusion

    To summarise, if you are in any doubt as to whether or not an IVA is the right option for you, you can get some free advice first. In England, you can speak to the Citizens Advice Bureau via the website or use their free debt helpline on 0800 240 4420. You can also contact moneyhelper.