Individual Voluntary Arrangement (IVA)
What is an Individual Voluntary Arrangement (IVA)?
An Individual Voluntary Arrangement (IVA) is a formal
agreement between individuals and their creditors, set up and supervised by a
qualified Insolvency Practitioner (IP). It allows individuals in debt to repay
a reduced amount over a specified period, often with a portion of the debt
being written off.
If monthly payments are not affordable, a lump sum offer can also be made. This would usually be funded by a third party or from the sale of assets.
How Does an IVA Work?
Here’s how an IVA typically operates:
Debt Repayment
Payments are structured over a period, usually 60 months, but can be reduced or extended depending on circumstances. The amount paid is based on disposable income after deducting reasonable everyday expenses. Creditors agree to accept this reduced amount as full settlement of the debts included in the IVA. Upon successful completion of an IVA, all outstanding debts are legally written off.
Legal Protection
Once an IVA is in place, creditors are legally prohibited from charging further interest or taking legal action to recover debts. Only the appointed IVA company can contact the individual regarding debt matters.
Failure
Failure to adhere to the agreed terms of the IVA can lead to its termination. If this happens, creditors can resume pursuing the individual for full repayment.
Successful Completion
Successful completion of the IVA results in the remaining unpaid debts being legally written off, providing a path to debt freedom.
Early Settlements
Subject to individual circumstances IVAs can be concluded early with a lump sum payment, which creditors often prefer to receiving payments over the extended period.
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Advantages of IVA |
Disadvantages of IVA |
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Single Monthly Payment: Simplifies financial management with one affordable monthly payment. Legal Protection: Shields against creditor actions such as interest accrual and legal proceedings. Trading: A business or sole proprietor can be allowed to continue to trade. Employment: A ‘professional’ or a director/promoter of a business can continue as normal. However, some professions take a dislike to IVAs. Interlocking IVAs: Allows couples with joint debts to enter into Interlocking IVAs. Support and Process: Offers personalized support with a dedicated point of contact throughout the process. |
Credit Impact: Adversely affects credit scores, potentially impacting future financial options. An IVA will remain on an individual’s credit rating for six years. There are also restrictions on obtaining credit during the IVA period. Asset Declaration:Requires declaration of all assets, including savings and property equity. Employment Impact:May influence employment depending on the profession. Equity Release: Individuals may be required to release equity from their property. Long-Term Commitment: Typically spans five years, which may be seen as restrictive. |
FAQ's
Payments are based on disposable income after deducting essential living expenses.
No, creditors are legally bound by the terms of the IVA and cannot take legal action.
Failure to meet payments may lead to the IVA failing, reverting creditors to pursue full debt repayment.
Yes, early settlements with a lump sum payment are possible, often preferred by creditors.
Yes, entering into an IVA will impact credit ratings negatively.
Fees are typically deducted from the monthly payments, with no additional upfront costs.
The entire process, from setup to completion, generally takes around five years.
If an IVA proposal is rejected, there are no charges incurred. The decision to proceed is based on the likelihood of acceptance.
