Individual Voluntary Arrangement

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Individual Voluntary Arrangement

IVA (Individual Voluntary Arrangement)

IVA Meaning

An Individual Voluntary Arrangement (IVA) is a formal and legally binding agreement between you and your creditors to pay back all or part of your debts over a period of time at an affordable rate.

An IVA is a legally binding arrangement made between you and your creditors to pay off your debts with a repayment plan that suits your circumstances. Once your creditors have agreed to the terms of an IVA, they cannot initiate court action against you, or even continue to contact you. All contact will go through your Insolvency Practitioner (IP).

After making monthly contributions towards your debts for a period of time, agreed with your creditors – most commonly five or six years (60 or 72 months respectively) – any remaining debt will be written off.

You will no longer be responsible for these debts, and you can move on with your financial life.

What is an IVA?

Set up and managed by an Insolvency Practitioner (IP), an IVA is a form of insolvency which allows you to write off a % of your unsecured debt in line with government legislation, and offers an alternative to bankruptcy.

An IVA will affect your credit rating for six years and your information will also be placed on the public Register of Insolvencies for the duration of the plan, but the process allows you to clear your debts within a reasonable time frame.

In an IVA a single monthly payment is agreed, with your current financial situation taken into consideration. This payment is then divided among creditors equally.

During the term of your arrangement, all interest and fees associated with your debts are frozen. At the end of the IVA, the remaining debts are written off and you can begin your debt-free future.

An IVA is open to residents of England, Wales and Northern Ireland only.

Will an IVA work for me?

An IVA can be a positive way to manage your debts, however, to be eligible you must meet the following criteria:

    • Have £6,000 or more of unsecured debt
    • Owe money to two or more creditors
    • Live in England, Wales or Northern Ireland
    • Have a steady income and consistently be able to make a payment of around £100 per month

If you do qualify for an IVA you can stop pressure from the people you owe money to, reduce monthly payments, and write off a high % of unsecure debt.

What debts can be included in an IVA?

Most unsecured debts, meaning debts that are not secured on an asset such as your home or car, can be included in an IVA.

Typical examples of unsecured debts are as follows:

    • Catalogue and store card debts
    • Credit cards
    • Personal loans
    • Overdrafts
    • Gas, electricity, and water bill arrears
    • Council tax arrears
    • Income tax / National Insurance arrears
    • Tax credit / benefit overpayments
    • Payday loans
    • Debts to family and friends
    • Property/vehicle shortfalls (Remaining balance following repossession)
    • Joint/guaranteed debts – but the other person must also continue their payments

Personal Guarantees:

  • The IVA will only be able to remove the legal liability of the personal guarantee itself. The IVA will not deal with the repayment of the debt or the legal obligation of the person or Limited Company to maintain repayments for themselves.
  • The original debtor will remain liable for the original debt and its repayments, whist the original agreement continues as scheduled.
  • The IVA will include the personal liability to the debt as a contingent creditor. This means that if, for whatever reason, the original agreement is defaulted upon, the creditor no longer has the assurance of being able to pursue the guarantor for repayment of the debt.

As well as the more common types of unsecured credit agreements listed above, there are some less common examples, all of which too, can be included in an IVA.

  • Overpaid Benefits: Child Tax Credits paid in error.
  • Unpaid Income Tax: Any outstanding income tax.
  • Unpaid Utility Bills: From previous addresses.
  • Unpaid Council Tax: Any outstanding council tax including the current financial year.
  • Unpaid Mobile Phone Contracts: Where the phone is no longer being used.

If you have a debt that does not fall into any of the above categories, or if you are unsure as to whether a debt you owe can be included in your IVA, please call and speak to our advisers on 02895 380906 to assist you.

Preferential debts included in an IVA?

For insolvency procedures starting after 1 December 2020, certain sums due to HMRC but held by businesses when they enter formal insolvency rank as secondary preferential debts in the order of priority.


Where the business is required to deduct these taxes from payments they make to another other person and pay those deductions to HMRC and the payment to HMRC is credited against the liabilities of the other person. This means they are paid ahead of all other creditors and need to be paid in full.

Typical examples of HMRC Preferential debts are as follows:

    • Value Added Tax (VAT)
    • Debts that relate to the following taxes:
        • Pay As You Earn (PAYE) Income Tax
        • Employee National Insurance contributions (NICs)
        • Students loan repayments
        • Construction Industry Scheme deductions

What debts can’t be included in an IVA?

  • Mortgages.
  • Other secured loans. including charging orders
  • Hire purchase agreements/logbook loans (unless you want to hand the car back).
  • Debts incurred through fraud.
  • Court fines.
  • TV licence arrears.
  • Student loans.
  • Child support arrears.
  • Social fund loans.

Living with an IVA

As with any financial decision, it’s important to consider how an IVA could affect your day-to-day life.

Your Career

Usually, an IVA will have no impact on your job, though it’s a good idea to double-check your employment contract and find out if you do need to let your employer know that you’re entering an IVA.

There are a few exceptions. If you work in the police, fire service, prison service, are a banking clerk, or are in a position of financial responsibility, such as an accountant or solicitor, being in an IVA could affect your role. It is very much based on individual circumstances and we have numerous clients that work for both the police and prison service.

Self-employed people can continue to operate a business while in an IVA, but obtaining ongoing credit may be an issue.

Your Home/Investment property

Owning your own property is taken into consideration when you apply for an IVA. The IP will consider the amount of equity that would be available to you if you were to sell your home and pay off your mortgage. They would also check if the amount of equity would be enough to repay your debts in full.

Please note that you will never be required to sell your home as part of your IVA. This, protection of the home, is the main reason clients choose to enter an IVA.

Whilst you may be asked to attempt to release some of the equity in your property, there are limits on how much you will be asked to release. We call this the “available equity”.

The available equity in your property will be calculated by taking the value of your property, reducing it to 85%, and then subtracting any mortgage or other secured borrowings on it. If that figure is less than £5,000 you will not be required to undergo any further review during your IVA and your IVA will simply last for 60 months.

If the available equity in your property is more than £5,000 at the start of your arrangement or you are over 60 years old, then your arrangement will last 72 months with no further review of your equity.

If the available equity is more than £5,000 at the beginning of your IVA, you are under the age of 60 and have £100 or more disposable income each month, your arrangement may last 72 months but there will be a review of your equity in month 54.

At this point, a further valuation will be undertaken, and an up-to-date mortgage/secured loan balance will be requested to establish the available equity in your property, again based on the 85% value.

You will be asked to attempt to remortgage your home and introduce all or part of that available equity, subject to further safeguards. The monthly payment for any additional borrowing cannot be more than 50% of your IVA contribution and the length of the loan cannot exceed the end of any existing mortgage or your state retirement age, whichever is the soonest.

If you are able to release some of the available equity (estimated within your proposal) at that point then your IVA will end when that money is received. If you cannot obtain a remortgage, then your IVA will simply continue for 72 months.

Can I get a mortgage while in an IVA?

If you’ve had an IVA, it can make it challenging to get a mortgage straight away. However, we have a specialist financial services department that can investigate this for you. The best chance of getting a mortgage is by waiting six years until it’s no longer recorded on your credit file.

There are some specialist lenders out there who may consider you before then. However, it’s unlikely that you’ll get access to the best rates available until you rebuild your credit score and prove to lenders, you’re a good candidate.

Remember though, that an IVA can be an important first step in taking back control of your finances.

Do creditors have a right to my possessions?

You will retain control of your possessions. Although all assets of value are detailed within your proposal, you can decide which to include or exclude with the advice from your IP.

Creditors may ask you to sell any items you choose to exclude from the agreement; however, your consent is required. All household goods and domestic goods are excluded from your arrangement by law. There are certain items that are always deemed essential, which you’ll never be asked to sell. These include:

    • Electrical items such as computers, phones, televisions
    • Clothing
    • Furniture and fittings
    • Books
    • Cooking equipment and white goods
    • Medical aids (e.g. mobility scooters and wheelchairs)
    • Children’s items

You should inform the IP of any assets you own to help them, and your creditors make an informed decision as to what payments you can afford. For example:

    • Shares
    • Insurance policies
    • Endowments
    • ISAs
    • Investments

Bank accounts, savings, and pensions

Bank accounts

Your current bank may exercise its ‘right to offset’ by automatically taking payment towards your debt from your account, which could leave you unable to meet essential living costs. Switching your accounts to a new bank protects you from this.

You’ll need to open a new bank account when starting an IVA if:

    • Your current bank is one of your creditors.
    • Your bank owns a company that is a creditor.
    • Your bank and the company you owe money to are owned by the same umbrella company.

Savings

It’s important to be aware that any savings you have will affect the type of IVA available to you and must be included in your arrangement.

Pensions

Pensions, including state pensions, are considered when IVA payments are being calculated. If you’re paying into a personal pension, creditors could ask you to stop doing so for the duration of your arrangement and to pay the amount to them instead.

If you’re over 55 and have a ‘defined contribution’ pension, which you have not yet started taking money from, your creditors will not expect you to use it towards an IVA, though you may choose to do so.

Advantages of an IVA

    • There are no upfront fees.
    • If your IVA is approved, creditors who vote against your proposal or who do not vote on the day are still bound by it.
    • Creditors whose lending is unsecured can’t take any further action against you once the IVA is approved.
    • Interest and charges are frozen by law, provided you keep up with your payments.
    • The IP will help you prepare your proposal, including agreeing on the level of your household and personal spending.
    • You make only a single payment each month, which is distributed to creditors on your behalf.
    • If your circumstances change a payment break could be authorised or the terms of your agreement could be varied.
    • You will never be forced to sell your home.
    • All remaining debts will be written off at the end of your IVA. Using government legislation, an IVA could help you write off a high % of your unsecured debt.

Disadvantages of an IVA

    • Spending restrictions are put in place during an IVA.
    • Not all debts can be included in an IVA, for example, student loans, child support and maintenance, magistrate court fines, and social fund loans, but an allowance can be given to enable you to continue repaying these.
    • Creditors may not approve your IVA.
    • If you are a homeowner, you may have to release equity in the final year of the IVA through remortgaging. If you can’t remortgage, your arrangement could be extended for up to 12 months in lieu of the equity available in your property.
    • If you become entitled to any windfalls or inheritance money over and above £500 during the term of the IVA, these funds will have to be introduced into the arrangement.
    • If you fail to make the payments due under the terms of your IVA, your arrangement could fail.
    • If your circumstances change, the IP can ask creditors to agree to an amended offer, however, if creditors refuse to accept amended terms, the IVA may fail. You may then still owe your creditors the amount that you owed at the outset of the IVA.
    • If your IVA fails, it could lead to you being made bankrupt.
    • IVAs are recorded on the Insolvency Register, which is a public register.
    • An IVA remains on your credit file for six years after it is accepted and may have a negative effect on your credit score for up to six years.

Managing your IVA

Your Insolvency Practitioner (IP)

During your IVA, your IP will manage the arrangement on your behalf, taking on a variety of duties including managing monthly payments and sharing those monthly payments among your creditors.

It’s important you keep the IP up to date with your situation. If your financial circumstances change, you must inform the IP as soon as possible so they can review your arrangement and apply any necessary changes.

It’s important you keep the IP up to date with your situation. If your financial circumstances change, you must inform the IP as soon as possible so they can review your arrangement and apply any necessary changes.

You

Although an IVA is managed primarily by your IP and creditors can no longer contact you directly, it’s important to remember you have a role to play too.

    • Pay contributions on time: Falling behind or missing a payment could breach your agreement and could risk your IVA being terminated by the insolvency practitioner.
    • Submit the necessary documentation for an annual review of your circumstances: This may affect the amount you pay into your IVA as payments can go up or down.
    • Making your IP aware of any changes in circumstances: That includes income, employment status, moving home, debts that may have been forgotten, and windfalls such as a lottery win or inheritance pay-out.

How much does an IVA cost?

There are three different types of fees to be aware of, however, all will be taken from your monthly payments with no surprise charges at the end of your arrangement.

Nominees fee: Normally a minimum of £1,000 and no more than £2,000 per case. This covers the preparation of your IVA proposal, which includes assessing your current financial situation and repayment offer to creditors. It also covers admin and facilitation costs during the process.

Supervisor’s fee: 15% of payments made, however, in some cases a fixed fee may be charged. This covers the ongoing administration of the IVA – including collecting and distributing your monthly repayments, handling any queries and annual review and managing creditor relations.

Disbursements: Typically, £800 per case. These are costs paid to third-party companies for software licenses, insurances and regulations that are required. This fee could also include payments made for the provision of additional services to provide the best return for your creditors.

Types of IVA

There are different IVAs available for a range of different circumstances:

Self-employed

An IVA for a self-employed person works in the same way as an IVA for an employed individual. The insolvency practitioner will put together an agreement of affordable monthly payments based on your projected income and expenditure. However, there are some differences to be aware of:

Seasonal income: Self-employed IVAs are typically written to be more flexible, which is particularly helpful when it comes to businesses with a more seasonal income. A cash flow statement will need to be prepared to enable the IP to understand how much you can contribute.

Business credit: The requirement to obtain credit to continue running your business throughout the agreement can be pre-agreed with the creditors included in your proposal. This will be subject to agreed criteria and parameters. Creditors will normally allow business credit provided it is repaid sooner than 30 days or the invoice terms.

Excluding trade creditors from the IVA to allow future trading: A self-employed individual may require the ongoing supply of goods or services from an unsecured creditor. Including this creditor in the IVA may severely impact the ongoing business relationship so under these circumstances, it’s possible to propose that certain trade creditors are excluded from the IVA and will receive ongoing payments towards their debts.

Joint IVAs

Couples can set up two IVAs that are administered as one, once they have been accepted by creditors. Joint debts will be included in both arrangements. This allows the household to make one affordable payment to all creditors through the IVAs.

Full and final IVAs

An option for those who want to offer a one-off payment to creditors as a full and final settlement.

This could be a viable option if you have sufficient savings or are in the process of selling an asset that will release funds for your unsecured creditors.

It’s also open to those who have a family member or friend who is prepared to provide funds to cover the total amount of the IVA.

Cancelling an IVA

It is possible to cancel your IVA before it finishes, however, this is something that should be given serious consideration. If you’re thinking of cancelling your IVA, the first step is to speak to your IP about your circumstances. They may be able to help with any problems you are facing.

To cancel your IVA, you must contact your IP in writing. You will then receive a notice of termination, and your IVA will be failed. When this happens, you will need to:

To cancel your IVA, you must contact your IP in writing. You will then receive a notice of termination, and your IVA will be failed. When this happens, you will need to:

    • Organise repayment of your debts to each of your creditors. You will still owe them the remaining amount. Your debts are not written off if your IVA is ended early.
    • Pay your IVA provider for the service they had provided thus far.


Your practitioner or your creditors could now choose to make you bankrupt. If your creditors do this, they no longer need to serve you with a ‘statutory demand’ to warn you of their intentions, as a failed IVA is sufficient grounds.

To avoid bankruptcy, the best thing to do is to contact all your creditors as soon as possible after your IVA fails and negotiate repayment directly.

To find out whether an IVA is appropriate for you, or to get debt advice and explore your options, talk to a Get Help With Debt adviser today on 02895 380906. We are here to help.

Our Work

We work closely with several local debt charities including adviceni.com and ruralsupport.org.uk providing training and support. Linda Wilson, our Voluntary Sector Services Manager, works closely to ensure that our services are accessible to those most in need.

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