Individual Voluntary Arrangement
An Individual Voluntary Arrangement (IVA) is a legally binding contract between you and your creditors to help you pay back your debts. An IVA combines your debt into one affordable monthly payment for a fixed period of time, usually 5 years though it can be flexible, after which any remaining debts are written off.
IVAs must be set up by a qualified insolvency practitioner, such as ourselves at Abbotts, who will review the details of your situation including your assets, debts, income etc to work out the right kind of repayment plan to suit your needs.
This could include monthly installments, a lump sum or a combination of the two. The plan should be reasonable and based on an amount that you can realistically afford to pay back that your creditors agree with. If you make monthly instalments, the IVA typically lasts around 5-6 years.
However you decide to pay, the money will be sent directly to your insolvency practitioner who will then distribute the money to your creditors.
Of course, a percentage of the payments will be kept by the practitioner to pay their fees which are previously agreed with the creditors. Your IVA proposal will contain full details of the fees.
Your creditors are required by law to freeze any interest charges and fees whilst you have an IVA to pay them back. If you have equity in your property (i.e. it’s worth more than the debt secured on it) you may have to remortgage in the 5th year of your IVA to release equity to contribute towards your outstanding debt. If you are not able to do this, your IVA could be extended for one more year to allow further monthly repayments.
If by the end of the extension period you have still been unable to pay your debts in full, you won't have to pay the rest and we can advise you further about what happens next.
What’s the difference between an IVA and a Debt Management Plan?
Unlike a Debt Management Plan, an IVA is a legal agreement meaning that both you and your creditors must adhere to the terms of the agreement.
In a Debt Management plan you will have to pay your creditors in full, potentially including interest fees and other charges on the debts, whereas with an IVA, the creditors must freeze interest and charges, making it easier for you to pay them back what you owe without the pressure of extra costs incurring.
Will an IVA affect my credit rating?
During your IVA, your credit score may be negatively affected, however, with a well managed agreement, you can get your finances back on track, helping to improve your financial record in the long run.
You may also have a county-court judgement (CCJ) that is recorded on your credit file for 6 years from the date it is issued, however, these are usually included in your IVA so you don’t have to worry about paying them both and rest easy knowing that when you are in an IVA, your creditors cannot take legal action against you.
As IVA’s typically last between 5-6 years, your CCJ record will be removed from your file soon after you have completed the agreement. After the IVA is finished, you can apply for credit but this will likely prove difficult. However, by meeting the terms of your agreement and taking steps to improve your credit profile, you can build a better score.
GET IN TOUCH