IVA
A lot of information has been written about IVAs and it’s important to recognise that they are not suitable for everyone. Debt Advice Foundation will only suggest the option of an IVA if it is right for your circumstances. We will also tell you up front what happens when an IVA fails so you know exactly what taking on an IVA means. We describe our approach to IVAs as “straight talking”.
Whilst an IVA will reduce the amount that you pay back to your creditors, it is unlikely to be 80%+, which is a figure you may sometimes see quoted in advertisements. What actually happens is that an Insolvency Practitioner (IP) helps you and your creditors to reach an agreement about how much money you can reasonably afford to pay back each month, after your living costs have been taken into account. How much debt is written off depends on your individual circumstances.
Interest and charges on any debts included in the IVA will also be stopped, you won’t have to sell your home as part of the agreement (although your IVA may last for 6 years as opposed to the standard 5 years if the equity in your home exceeds £10,000) and your creditors cannot take any further enforcement action against you, such as petitioning for your bankruptcy.
However, once you have started an IVA, you need to keep making the payments you have agreed to for the full five year term or your IVA could be unsuccessful. If there’s a good reason why you’ve been unable to continue making your payments (if your circumstances change, for example if your income is reduced) then your IP has some discretion to reduce your payments or, failing that, they can go back to your creditors and try to renegotiate your monthly payments (this is called a ‘variation’). Whilst most IVA variations are approved by creditors, there is a chance that your creditors will not accept the new terms. If this happens or if you consistently miss payments without contacting your IP then your IVA will fail and you may be left with bankruptcy as the only realistic option available to you. For this reason we will only suggest an IVA if it is suited to your financial circumstances.
Whilst your creditors will agree to your Insolvency Practitioner receiving a fee from your monthly payments for managing the IVA, it’s important to keep in mind that if your IVA fails, any fees paid up to that point will not be recoverable.
It’s also important to bear in mind that if you benefit from an ‘after acquired asset’ during your IVA (an asset, windfall or inheritance above £500) that enables you to pay off your debts in full, then your creditors will expect you to meet the IVA fees in addition to your original debt.
If you need debt advice, there’s no need to wait or book an appointment, our advisers are available Monday to Friday 8am to 6pm on 0800 043 40 50.
The advantages of an IVA
- Your creditors will agree to write off part of your debt.
- You can keep your house.
- Interest and charges are stopped on any debts included in the arrangement.
- Your creditors are legally prohibited from taking any further enforcement action such as petitioning for your bankruptcy.
- By repaying what you can, you emerge after five years with your finances back on track.
The disadvantages of an IVA
- You must keep up payments for five years or risk bankruptcy (any fees you’ve paid up to that point will not be recoverable).
- This may be extended for a further twelve months if you have more than £10,000 equity in your home.
- The payments you make can go up if your income increases or if your expenditure reduces during the five years.
- The IVA will affect your credit rating for a period of six years from the date the IVA begins (whilst most people will take the view that resolving an existing debt problem is more important than their ability to take on additional debt over the next six years, it’s still important that anyone considering entering into an IVA is fully aware of the consequences).
Related questions
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