Straight Talking - IVAs

So what exactly is an Individual Voluntary Arrangement (IVA)?

An IVA is a legally binding agreement between you and the people you owe money to. You will be expected to pay what you can reasonably afford each month, typically for a period of five years, and after that time your creditors will write-off any remaining debt. Typically, an IVA will write off 58% of an average debt of just under £60,000 (source CCCS - 2008 review).

So are there fees to pay in an IVA?

Everyone who provides and manages an IVA – charities like ourselves or commercial organisations receive a payment from your creditors (the people you owe money to). Your creditors pay us for setting up the IVA, which is a legal agreement, and then for managing the IVA, typically for a period of five years. We all receive the same payments to do this. The important thing is to make sure you get impartial advice on whether an IVA is right for you.

So what do you pay?

You will only be expected to pay what you can reasonably afford each month into the IVA, which is the amount left over after you have paid for your essential monthly outgoings. This amount is offered to your creditors in the form of an official IVA proposal. At least 75% of your creditors (by amount of debt, not number of creditors) have to accept the proposal in order for the IVA to be approved. You may also be required to release any equity that is available in your home at the end of the IVA - but only if you can afford to.

So for example, if you owed £25,000, you did not own your own home and you could only afford to offer your creditors £200 a month, after your day to day living costs have been accounted for, then assuming your creditors agree, you'll pay back £12,000 in total over the sixty months (this includes your Insolvency Practitioner's fee), which means that £13,000 is then written off. You can read more about IVA fees here.

So is the IVA free?

If your IVA application is approved, the amount you can afford to pay each month is the only amount you will pay – you don’t have to pay a fee on top.

Your creditors agree that the IVA provider (charity or commercial company) takes their fee from each payment they receive from you, with the balance being passed on to your creditors.

This is why you'll often see the IVA described as free to the consumer – your monthly payment (and the total amount you pay back, which is less than the amount you owe) is determined by the amount you can afford to give to your creditors each month after essential living expenses. You can read more about IVA fees here.

Why do creditors need to pay charities like yours to set up and manage IVAs?

We are a self funding charity and like other charities in our sector we rely on creditor payments to help fund our helpline. By receiving fees from creditors we are able to provide free advice and support to a wide range of callers.

So what if you can’t keep up with your IVA payments?

If you don’t stick to the monthly payments that you have agreed to then the IVA is said to be in default. If there’s a good reason why you’ve been unable to make your payments then your Insolvency Practitioner (IP) can talk to your creditors and renegotiate your monthly payments to get you back on track.

If your creditors are not prepared to accept that the reasons you've given for failing to keep up with your payments are justified then they may require your IP to fail your IVA. This is why we will only suggest an IVA to you if it suits your financial circumstances and you feel you can commit to living to an agreed expenditure for five years.

If your financial circumstances change we will do our very best to negotiate a payment restructure on your behalf. Remember, it's nearly always in your creditors' best interests to accept whatever payments you can afford to make as the they are unlikely to recieve as much back if the IVA fails.

So what happens if my IVA fails?

This situation is the same for charities and commercial providers alike; it is the reason why we only recommend an IVA where we believe it will be successful.

If your IVA fails then your debts will be reinstated less any payments received by the creditors (this is the sum total of payments you’ve made up to that point less any fees your creditors have agreed to give your IP). Also, interest may be added back on and your IP may be required by your creditors to petition for your Bankruptcy. Individual creditors will also regain the right to petition for your Bankruptcy and you will be back to where you were before you agreed to the IVA.

Creditors pay fees to all IVA providers (charities and commercial companies) in the same way - they are higher in the first six months of your IVA in recognition of the set up work carried out by your IP and then reduce to a percentage of the monthly payment thereafter. This does mean that if your IVA fails within the first year, your creditor may conclude that a large percentage of your payment during this time was on fees.

Does Debt Advice Foundation provide IVAs?

Yes we do. As a registered UK charity we provide free debt advice to anyone who contacts us and we only recommend the solutions which are right for each individual based on their circumstances. Our range of solutions extends from self help guidance through to non-fee charging DMPs, IVAs and for those clients that have no alternative, Bankruptcy and DROs.

If you need to talk confidentially to someone about debt, there's no need to wait or book an appointment, our Advisors are available Monday to Friday 8am to 8pm and Saturday 9am to 5pm on 0800 043 40 50.