IVA is the short name for an Individual Voluntary Arrangement, it is a formally agreed contract with your creditors that you will pay a fixed amount each month subject to them accepting reduced payments and a reduced amount over the term. It is normal that £10,000 or more debt across at least three creditors is required to qualify for an IVA, however, please take note of the ‘I’ in IVA, each IVA is assessed based on the individual, there is no fixed formula for the working of an IVA.
An IVA has benefits over and above the less formal Debt Management Plan (DMP) in that there is a definite fixed term, usually 5 years from commencement. After this point, your creditors will have already agreed to write off any outstanding unsecured debt. You may, however, be required to release equity in your property by way of a re-mortgage.
How an Individual Voluntary Arrangement (IVA) works
Step 1 – you call us
When you contact us about an IVA, we will initially assess you for a Debt Management Plan (DMP) also. This is because IVA’s take 6 weeks or more to put in place, so we try to help you as quickly as we can. We may set up a Debt Management Plan for you as both a more immediate solution and a fall back in case your IVA is not agreed.
Step 2 – IVA proposal
If you appear to meet the strict criteria for an IVA, your case will be passed on to IVA Assessment team the same day. They will contact you in order to get further information and make a decision as to whether we can proceed with an IVA application.
If our assessment is that an IVA would be appropriate, we will progress the application on your behalf, keeping in close touch with you and your creditors.
Step 3 – meeting of creditors (MOC)
Once your proposal has been drafted and sent to your creditors, we will arrange a by proxy meeting. This is in order that your creditors can vote on whether to accept your IVA proposal.
You would not normally attend this meeting as all votes are usually cast “by proxy” which is similar to a postal vote. You may attend if you wish.
Step 4 – your IVA has been approved
In around 75% of cases, your IVA will be approved, at which time your case will be passed to our supervision department, you will be appointed a case handler who will be there as a point of contact throughout your IVA. 75% of your creditors must agree to this for your IVA to be approved.
IVA example
At this point, we must point out again that an IVA is very much an individual arrangement and that no two are the same. This is just an example aimed to help you understand how they work.
Jeffrey is a civil servant, whilst he lives with his girlfriend; she is unaware of the level of his debts. If made bankrupt he would possibly loose his job.
Before his Individual Voluntary Arrangement (IVA)
Jeffrey owed money to 9 creditors, which totalled £15,499.04.
Equidebt (overdraft) – £1,035.50 with a payment of £750.00
Welcome Financial Services (loan) – £7,108.95 with a payment of £181.00
Moorcroft Debt Recovery (mobile contract) - £520.04 with a payment of £20.00
Fredrickson International (loan) – £559.37 with a payment of £48.00
Allied International Credit (utility bill) – £347.39 with a payment of £50.00
Royal Bank of Scotland (credit card) – £1,396.03 with a payment of £45.00
Capital One (credit card) – £201.18 with a payment of £10.00
Moorcroft Debt Recovery (store card) – £412.45 with a payment of £16.00
Moorcroft Debt Recovery (loan) – £3,868.13 with a payment of £171.00
His monthly payments add up to £1,291, which is more than he earns each month. Three of the debts were with debt collection companies because he was completely unable to pay what he owed. Had we not been able to help, he would have been made bankrupt and potentially lost his job.
During his Debt Management Plan (DMP)
Prior to his IVA being accepted, we placed him on a debt management plan, this helped to keep his creditors happy and improved the chances of them voting in favour of his IVA. We assessed his disposable income (DI) to be £120 per month, which is what he paid into the DMP. At this rate, it would have taken over 13 years to pay off his debt.
During his Individual Voluntary Arrangement (IVA)
It took 3 months to get his IVA passed, during which his disposable income (DI) increased to £160 per month due to an improvement in his budgeting.
He will pay £160 per month for 5 years from the inception of the IVA. Meaning that he will pay only £9,600 into his IVA.
He has no equity in any property or significant assets, so at the end of this term his outstanding unsecured debt will be written off. From the money paid into his IVA, he will pay £5,100 in fees to the Insolvency Practitioner. These fees were agreed by the creditors as part of the IVA. Fees are different in every case.
Benefits of an Individual Voluntary Arrangement (IVA)
An IVA will:
- Consolidate all your debts
- Reduce your monthly outgoings in line with what you can afford
- Give you a date on which your debt will be cleared
- Freeze your interest and charges
- Stop debt collectors and bailiffs form calling you
- Stop letters and phone calls from your creditors
Potential drawbacks of an Individual Voluntary Arrangement (IVA)
An IVA, like all other financial solutions has potential drawbacks. None are definite, but we feel it appropriate to outline them so that you can make an informed decision.
- Your details will be recorded on the insolvency register
- You will not be able to get any additional credit
- Your credit file may be affected
- You will be tied into the agreement for the term
- Failure to comply with the IVA may lead to bankruptcy
Important Information About Our Service & Fees
Whilst we strive in all cases to negotiate the best deal with your creditors, we cannot guarantee a reduction in interest or charges. Also as one of the largest providers of debt management solutions in the UK, we are able to provide initial advice over the phone without charge, however, if a debt solution is taken out, please be aware that fees will be charged. We aim to keep these fees as low as possible and believe that we are very competitively priced, for detailed information on our fees, including examples for each product, please click this fees link.
Further Additional Information
What if you decide that I don't want to go ahead? - click here.
Will your credit rating be affected? - click here.
The insolvency service has produced a guide for people who are struggling with debt. This guide outlines each of the available solutions. You can download the guide by clicking the following link - In Debt? Dealing With Your Creditors.
If an IVA is not maintained it could lead to bankruptcy.