What is an IVA?
An IVA is a legally binding agreement set up between you and your creditors for you to repay an amount you can afford over a fixed period of time; usually around five years. It allows any unsecured debts to be written off at the end of the IVA.
- For an IVA to be approved, creditors representing at least 75% in value of the creditors who vote must agree to it. Once they have, it’s legally binding and they can’t pursue you, or take any further court action, as long as you keep to the terms of the agreement.
- If you enter into an IVA then you will have an insolvency practitioner who will act as your nominee and help you put together a proposal for your creditors. Part of this will process will involve negotiating with lenders on your behalf to agree an affordable amount to repay.
- You will only have to pay one amount each month and that will include fees for setting up and managing your IVA. You won’t have to pay extra for these fees – you simply pay the agreed amount you can afford each month and these costs will be deducted from the sum you pay every month.
- IVAs usually last for 5 years (60 months). However, if you’re a homeowner, you will be asked to release some equity to pay into your IVA. If you’re unable to do this, you’ll need to make a further 12 months’ worth of payments into your IVA, meaning it’s complete after 6 years.
- An IVA is only available if you live in England, Northern Ireland or Wales. If you live in Scotland, you can apply for a Trust Deed.
What does IVA stand for?
IVA is an abbreviation for Individual Voluntary Arrangement. It was introduced as an alternative to bankruptcy as a way for you to clear problem debts at a rate you can afford, whilst protecting your assets.
Do I qualify for an IVA?
You will need to meet the following criteria in order to be eligible to apply for an IVA through PayPlan:
- Have a minimum debt level of £7,000
- Owe money to at least 2 creditors
- Have a regular income either from employment, benefits or pension
- You can afford to pay a minimum of £50 into the arrangement after all of your essential living costs have been met
Before we recommend an IVA for you, we will carry out a full assessment of your circumstances to decide if this is the best debt solution for you, or recommend an alternative, if we think that would be better.
What debts can be included in an IVA?
Most common types of debt can be included in an IVA, such as credit cards, personal loans, overdrafts, utility arrears, store cards, catalogues and payday loans. But secured debts (like mortgages or other loans secured against your property) and some other debts (including student loans, fines and child support) will still have to be paid separately, outside of the IVA.
How much debt is written off in an IVA?
With an IVA, a considerable amount of your unsecured debt could be written-off. However, the figure will vary depending on your circumstances.
The reason for this is because the monthly amount you pay into the arrangement is based on your disposable income. Your disposable income is worked out after we have looked at your incoming and outgoings to understand how much money you have leftover to pay your creditors.
As an example, in a 5 year IVA if you have £100 a month leftover to pay your creditors you will make 60 monthly payments of £100 = £6000.
If your unsecured debt was £20,000, at the end of the 5 years, the remaining £14,000 will be written off and you will be debt-free.
Last year, we wrote-off 80% of debt in half of all cases for clients who didn’t own a home.
Can the amount of debt written-off in an IVA change?
Whilst IVA payments are agreed at the beginning of the arrangement, they can go up or down if your circumstances change.
If your income increases, your monthly payments may go up and as a result, you may pay more into the arrangement overall and the amount of debt that is written off will reduce.
However, if you have a change of circumstances that means your income reduces, your payments into the arrangement could go down, so you can still afford to pay your regular outgoings. As a result, you will write-off more debt than first thought.
What should I do now?
If you are struggling to pay your debts, then we recommend you get in touch either online or by phone on 0800 316 1833 so one of our friendly advisers can have a look at your circumstances and work out the best debt solution for you.
If we think that an IVA is the best debt solution for your circumstances, one of our IVA specialist companies (PayPlan Partnership Ltd or PayPlan Bespoke Solutions) will put forward your IVA proposal to your creditors.