When Should I Consider An Individual Voluntary Agreement?

An Individual Voluntary Agreement, commonly shortened to IVA, is an attractive debt solution that could make you debt free in just five years, with up to 70% of your debt written off. An IVA is a formal and legally-binding debt solution plan that works on the premise of paying your creditors with affordable monthly payments without the worrying threat of legal action or stress from creditors hassling you for payment.

As with all debt solutions, IVAs are only suitable for some types of debts, and you may not be eligible. This article will explain more thoroughly about what an IVA is and who could benefit from the agreement as well as offering the advantages and disadvantage of the scheme.

What Is An IVA?

An Individual Voluntary Agreement (IVA) is a government-backed and legally-binding agreement that is upheld by you and your creditors. It is a formalised debt solution that can help you to pay your debts back over a period of time, usually in affordable, fixed monthly sums.

As the IVA is legally binding, it means that the courts approve it and that you and your creditors have to stick to it. For you, it means that if you can’t make your repayments, your creditors may force you to be declared bankrupt. For your creditors, the fact that it is legally binding means that they accept your contributions to the debt and can no longer chase you for the debt. Once the period of the IVA is up, the creditors write off the remaining debt, and you will not be hassled by them again.

An IVA is a form of insolvency but different to bankruptcy. With bankruptcy, your bank account is likely to be closed, and there is little flexibility. With an IVA you can continue to use your bank account, and you have more flexibility regarding your personal circumstances.

How Do You Set Up An IVA?

Using an insolvency practitioner, usually an accountant or solicitor, they work out an achievable and affordable repayment plan. The insolvency practitioner will then send your offer to your creditors, and it is the creditor’s decision whether or not to approve your repayment plan.

A creditor meeting is held where all of your creditors can discuss your plan. For approval, 75% of the creditors must be in agreement on your repayment plan. Creditors also have the chance to approve your plan providing that you agree to make certain modifications to the agreement. If you accept the changes, or if there are no changes, the IVA will be approved on the day of the meeting.

If the creditors propose changes that may require you to take time for consideration, the meeting can be adjourned for up to 14 days. While most people assume lenders will not accept an IVA, the creditors actually have more chance of recuperating part of the debt this way compared to other methods, providing you give your best offer to creditors, they are likely to be favourable of the agreement.

Once an IVA is agreed, you begin to make monthly repayments to your insolvency practitioner; they will distribute the money to the creditors as well as keep a proportion to pay for their fees.

Is An IVA For Me?

IVAs are common debt solutions for those who have at least a spare £100 a month from their income and for those who have either two or more two debts, from two or more creditors.

An IVA is a prime choice solution for those with debts over £10,000 and is ideal for people who don’t want to deal with creditors directly.

What Are The Advantages?

Some of the benefits include;

  • Legally binding – no one can chase you for debt once in force
  • Limited time – you could be debt free in five years
  • Creditors accept only part of the debt will be repaid
  • It is flexible, pay back what you can afford
  • The practitioner deals with the creditors, so you don’t have to
  • Your home and family are protected, and you have money to live.

At the end of the IVA, the remaining debt is written off, and after six years, your record of the IVA will be taken off the insolvency register so that you can build your credit rating up again.

What Are The Disadvantages?

  • The IVA will put you on the insolvency register, which affects your credit rating
  • The scheme is not available in Scotland
  • The IVA must be set up by a qualified person, and they will charge a fee around £5,000 to set up an agreement which adds to the debt
  • If you are an accountant or solicitor, you may be prevented from working
  • You may have to remortgage your home and sell your car and other high-value goods
  • Your savings and pension payments will often be used to pay creditors.

Throughout the length of an IVA you commit to paying a set monthly sum, this means you have to commit for the whole period. If you struggle to keep up with payments, your IVA will fail, and you could be made bankrupt.

What Are The Alternatives?

If an IVA doesn’t suit your personal circumstances, there are other debt solutions such as bankruptcy, a Debt Relief Order or a Debt Management Plan.