IVAs: 6 Facts You Should be Told Before Entering an Individual Voluntary Arrangement (IVA)

  1. An IVA is a legally binding agreement.  This means that if you are in an IVA, any company you owe money to is unable to take any further action against you and are not allowed to contact you about repayment as long as you keep up with your payments to the plan.  Creditors have no legal right to pursue you beyond the IVA, so any letters or phone calls that make payment demands should stop.

  2. Your debts can be written off after 5 years. 60 monthly payments are usually proposed and once this is complete you will be free of debt, although if you are unable to release any equity in your property you may have to make 12 further payments. You risk your IVA failing if you do not make all of your payments; your debts will not be written off and interest charges would probably be re-applied.

  3. The IVA stays on your credit file for 6 years after the start of the plan. This is not as bad as it sounds however, since the IVA itself will usually last only 5 years so it will only be on your file for one further year.  If you continue to make payments as per the terms of the IVA, you should be debt-free after 5 years, with a significant amount of your debt written off and you can start afresh with a clean credit history soon after.

  4. An IVA has to be nominated and supervised by a licensed Insolvency Practitioner.  A good Insolvency Practitioner should be able to demonstrate to your creditors what you can afford to pay, and then negotiate an agreement from them in order to reduce the amount owed by the end of the term of the IVA.  Creditors aren’t obliged to accept an IVA proposal, however a good proposal should be able to demonstrate that your IVA is sustainable over 5 years; if your creditors are confident that you’re able to keep to your IVA payment schedule for 5 years, then there’s a good chance your IVA proposal will be accepted.

  5. All IVA’s come with associated fees. Some debt management companies charge fees upfront regardless of whether the IVA is approved or not. However others will only take fees once the IVA has been approved and these will come out of the payments that you make into the IVA.  Fees are variable according to the level of the debt and are normally built into your monthly IVA payments.  Non-fee charging (“free to client”) debt management companies are able to negotiate IVA’s that are structured in such a way that your creditors agree to pay your IVA fees.

  6. If you are a home owner with equity in your property, you will be encouraged to re-mortgage in the fourth year of the plan.  By this stage, creditors will have agreed to write off a significant proportion of your debts upon completion of the IVA, so they will expect you to realise part of your property’s equity, assuming you have a significant amount of equity in your property.  If you cannot get a re-mortgage then you will just be asked to make a further 12 payments into the IVA.

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