Individual Voluntary Arrangement

April 2024

Individual Voluntary Arrangement In April 2024

Debt accumulation can be an extremely distressing situation. 

Individual Voluntary Arrangements (IVAs) offer a lifeline to those struggling to make monthly repayments of what they owe.

This article will examine IVAs and their impact, as well as semantically relevant topics, guiding this legally binding debt solution.

Topics that you will find covered on this page

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What is an Individual Voluntary Arrangement?

Individual Voluntary Arrangement (IVA) is a formal agreement facilitated by an insolvency practitioner between an individual and their creditors.

It allows the debtor to make feasible monthly payments on their unsecured debt over a fixed period, typically between five and six years. After this period, any outstanding debts are forgiven, resulting in financial relief.

The IVA Process: Proposal and Acceptance

In collaboration with the individual, a debt counsellor prepares an IVA proposal delineating the repayment plan and other terms.

The practitioner of insolvency then presents the proposal to the creditors. A minimum of 75% of creditors by value must approve the IVA to be legally enforceable.

Monthly Payments and Lump Sum Options

IVA payments can vary depending on an individual’s financial circumstances. Monthly or lump sum payments are calculated based on disposable income, ensuring they are affordable.

Sometimes, a lump sum payment can be made instead of monthly fees if the debtor has access to a substantial quantity or lump sum of money.

The Impact of an IVA on Credit Rating

An IVA will inevitably have an impact on one’s credit rating. It will be recorded on an individual’s credit file for six years, making it more difficult to obtain credit during this time.

Credit reference agencies will also be notified of the arrangement, further affecting the credit file and the individual’s ability to secure credit.

Secured and Unsecured Debts

An IVA primarily addresses unsecured debt, such as credit cards, personal loans, and bank loans. Secured obligations, like mortgages or secured loans, are typically not included in an IVA.

However, depending on individual circumstances, mortgage or rent arrears can be dealt with separately as part of the arrangement.

What Happens If an IVA Fails?

If an individual cannot maintain their IVA payments or their financial circumstances change dramatically, the IVA may fail.

In this case, the insolvency practitioner may give debt advice and recommend alternative debt solutions, such as a debt management plan or bankruptcy. It is crucial to obtain professional debt advice if struggling with IVA payments.

Considering Alternative Debt Solutions

An IVA is one of many debt solutions for those struggling with unsecured obligations. Other options include debt management plans, debt relief orders, and bankruptcy.

Before making any decisions, obtaining free debt advice from a qualified debt adviser is essential, as the best solution will depend on the individual’s circumstances.

The Effect of an IVA on Essential Living Costs

As recurring payments are calculated based on disposable income, an IVA should not substantially impact essential living expenses.

However, it is crucial to accurately report all necessary expenses to the insolvency practitioner, ensuring the IVA is affordable and sustainable.

The Role of Insolvency Practitioners and Debt Advisers

In the IVA procedure, insolvency practitioners are the mediator and legally binding agreements between the debtor and their creditors. They ensure that the deal is appropriate, equitable, and legally binding.

Debt advisers, on the other hand, assist individuals in navigating the complex world of debt management by advising them on the best debt solution for their specific circumstances.

An Individual Voluntary Arrangement can be a lifeline for those struggling with debt, offering a structured repayment plan and a path towards financial stability.

However, obtaining professional debt advice before committing to any debt solution or individual volunteer is essential, ensuring it is the best course of action for one’s unique.

Addressing Joint Debts and Maintenance Arrears

IVAs can also address joint debts, where both parties consent to include them in the arrangement. However, it is essential to note that the other party will remain liable for the total amount if one individual enters an IVA.

Maintenance arrears, such as child support, can also be included in the IVA, providing a means to manage overdue payments.

Applying for an IVA and Choosing a Provider

To apply for an IVA, individuals should counsel a debt adviser, who will assess their financial situation and determine if an IVA is the most suitable solution. Once confirmed, the debt adviser and an insolvency practitioner will help prepare the IVA proposal.

It is essential to select a reputable IVA provider, as they will supervise the entire process and ensure the arrangement runs efficiently.

Managing Rent Arrears and Council Tax Arrears

Rent arrears can be included in an IVA, helping individuals manage overdue payments while preserving their tenancy. 

However, continuous mortgage or rent arrears must be maintained separately from the IVA payments.

Similarly, council tax arrears can be addressed within the arrangement, provided that future council tax payments are made promptly and individually.

The Impact of an IVA on Credit Rating

Understanding the Individual Insolvency Register

The Individual Insolvency Register is a public record of all insolvencies and individual voluntary arrangements, including IVAs, in the UK. 

The Insolvency Service maintains the register; an individual’s details will appear on the registry throughout their IVA.

Upon practical completion of the IVA, their information will be removed three months after the arrangement’s end date.

The Impact of an IVA on Car Finance and Bank Accounts

An IVA may affect car finance agreements, mainly if the vehicle is considered a non-essential asset. 

However, if the car is necessary for work or other essential purposes, the debtor may be allowed to retain it.

Bank accounts may also be impacted, as some banks may restrict or close tabs during the IVA. It is recommended to check with the bank before entering an IVA to comprehend potential limitations.

"Individual Voluntary Arrangements (IVAs) offer a lifeline to those struggling to make monthly repayments of what they owe."

Considering Re-mortgage and Existing Mortgage Options

An IVA may require individuals to re-mortgage their property to release equity for debt repayment. Typically, this occurs after the arrangement.

However, if re-mortgaging is not practicable, the IVA may be extended to compensate for the lack of equity release. 

To safeguard the property, existing mortgage payments must be maintained independently of the IVA.

Preparing for Life After an IVA

Once an IVA is successfully concluded, the credit file and the remaining debts included in the arrangement are written off. 

However, individuals should be aware that their credit score will continue to be negatively impacted for six years following the IVA’s start date.

To rebuild their financial Life, they must manage their finances responsibly, gradually improve their credit score, and refrain from applying for additional credit until their credit score adequately recovers.

What is an Individual Voluntary Arrangement

Dealing with Trade Creditors and Personal Loans

IVAs can also include trade creditors, such as suppliers or service providers. The legally binding agreement guarantees that all unsecured creditors receive a proportional share of the debtor’s affordable monthly payment.

As a form of unsecured debt personal loans can also be included in the IVA as a form of unsecured debt, providing relief to individuals struggling to make payments.

Single Monthly Payment and Payment Breaks

An IVA simplifies debt repayment by consolidating numerous unsecured obligations into a monthly payment. 

This payment is divided among creditors, making the debtor’s repayment process more manageable.

Individuals may request a payment pause from their insolvency practitioner under specific conditions, such as illness or job loss. However, this may extend the duration of the IVA.

Meeting Minimum Debt Level Requirements

While there is no legally defined minimum debt level for an IVA, most insolvency practitioners recommend between £5,000 and £10,000 in unsecured debt.

This ensures that the costs associated with the IVA procedure are justifiable and that the debtor will benefit from the arrangement.

Addressing Secured Loan Arrears and Other Secured Loans

Although an IVA focuses predominantly on unsecured debts, secured loan arrears can occasionally be included. 

Incorporating fast loans is contingent upon the individual’s financial situation and the secured creditor’s consent.

If the creditor agrees to the terms, additional secured loans, such as auto loans, may also be included in the IVA.

Navigating Income Tax and Other Outstanding Bills

Income tax arrears can be included in an IVA, enabling individuals to manage delinquent payments more effectively. 

Nevertheless, it is crucial to continue paying ongoing income tax obligations separately from the IVA.

Other delinquent bills, such as utility arrears, can be included to ensure a comprehensive debt management strategy.

Seeking Free Debt Advice and Evaluating Financial Circumstances

Before entering an IVA, obtaining free debt advice from a reputable organisation, such as a debt charity or a debt adviser, is essential.

They will evaluate a person’s financial situation, including income, expenditures, and debt, to determine if an IVA is the optimal debt solution. 

This recommendation ensures that individuals make well-informed decisions based on their circumstances.

Individual Voluntary Arrangement in the UK

Understanding the Legally Binding Nature of an IVA

An IVA is a legally binding debt solution, so the debtor and the creditors must adhere to its terms. Once an IVA has been established, creditors must suspend all legal action and interest charges on remaining debts.

If the debtor maintains the agreed-upon monthly payments and complies with the IVA’s terms, they are protected from creditor harassment and potential bankruptcy.

Dealing with Secured Debts in an IVA

While an IVA focuses primarily on unsecured debts, it is essential to consider secured debts when evaluating a person’s financial situation. Typically, an IVA does not include secured obligations, such as mortgages and auto loans.

However, it is essential to maintain payments on secured debts to avoid the risk of repossession and other consequences. 

It is vital to discuss secured debts with the insolvency practitioner to comprehend their impact on the IVA and ensure that all financial obligations are effectively managed.

Understanding IVA Effects on Different Aspects of Life

An IVA can affect numerous aspects of a person’s existence, including their credit score, access to additional credit, and employment prospects. IVAs hurt credit reports, making it difficult to obtain extra credit during the arrangement.

Additionally, some employers may view insolvency negatively, particularly in the finance and management industries. 

Before proceeding with an IVA, it is essential to consider its potential consequences and discuss these concerns with a debt counsellor.

Navigating Bank Accounts and Monthly Contributions

Individuals can continue using their existing bank account during an IVA if the bank is not a creditor. If their current bank is a creditor, they may be required to establish a new tab with a different bank.

The monthly IVA payment will be based on the individual’s disposable income and paid directly to the insolvency practitioner or IVA provider. 

It’s crucial for the arrangement’s success that monthly contributions are made on time.

Managing Rent Arrears and Payment Breaks

Rent arrears may be included in an IVA, but rent payments must continue to be made separately. It is essential to address rent arrears separately and individually to avoid the risk of eviction and further financial distress.

During the duration of an IVA, a person’s capacity to make monthly payments may be affected by changes in their financial situation.

In such cases, the insolvency practitioner may suspend payment, allowing the debtor to temporarily halt IVA payments and address urgent financial concerns.

Choosing the Right IVA Provider and Agreement

Selecting the proper IVA provider is crucial to the arrangement’s success. Reputable IVA providers will guide and assist throughout the process, tailoring the IVA to the debtor’s financial situation.

Before committing to an IVA, it is crucial to conduct research on multiple providers and consult with debt experts.

Once the IVA agreement is in place, individuals must adhere to its terms and conditions, making payments on time and notifying the insolvency practitioner of any changes to their financial situation.

The Role of Public Insolvency Register and Debts Written Off

The debtor’s identity is added to the public insolvency register upon entering an IVA, accessible to anyone, including potential employers and lenders. This can affect a person’s reputation and creditworthiness.

The individual’s name will be removed from the register upon practical completion of a voluntary arrangement under the IVA. 

After the meeting, the debts included in the IVA will be written off, allowing the debtor to start over financially and restore their former credit rating.

Debt Management Companies and IVA Alternatives

A debt management company may provide alternatives to an IVA for individuals who owe money and are struggling with debt. 

These businesses can assist individuals in developing a debt consolidation plan that will result in a single monthly payment.

Investigating and comparing the services offered by various debt management companies is crucial to ensure they are reputable and trustworthy. 

Although a debt management company and plans are not legally binding agreements like IVAs, they can still help individuals regain financial control.

How an IVA Affects Credit Reports and Access to Further Credit

IVAs significantly impact a person’s credit report for six years after the arrangement begins. During this time, the IVA will be visible to lenders, which may make it more challenging to obtain additional credit.

The individual’s credit score may be negatively affected and subject to higher interest rates or more stringent lending requirements. 

Before engaging in an IVA, one must consider the potential effects on one’s credit report and access to additional credit.

Balancing Affordable Monthly Payments and Meeting Creditor Requirements

When engaging in an IVA, reasonable monthly payments must be negotiated to ensure the debtor has sufficient funds to cover basic living expenses.

The insolvency practitioner will collaborate with the debtor to determine a reasonable payment schedule based on the debtor’s income and expenses. This monthly payment will be allocated to all creditors included in the IVA.

It is crucial to maintain these monthly payments to comply with the terms of the legally binding agreement and prevent the IVA from collapsing.

Managing IVA Payment Breaks and Adjusting Contributions

In some instances, changing a person’s financial circumstances may make it challenging to maintain their monthly contributions.

In such situations, the insolvency practitioner may grant a payment suspension to assist the debtor in overcoming any transient financial difficulties.

Communication with the insolvency practitioner is crucial in these circumstances, as they can work with the debtor to modify the monthly payments or extend the IVA term as needed.

It is essential to remain proactive and transparent to ensure that the IVA continues to be successful and ultimately leads to debt relief.

Meet the author

Jane Parkinson

Jane Parkinson

Jane is one of our primary content writers and specialises in elder care. She has a degree in English language and literature from Manchester University and has been writing and reviewing products for a number of years.

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Frequently Asked Questions

How does an IVA affect my credit?

An Individual Voluntary Arrangement (IVA) can substantially affect your credit score. Six years after the legally binding, individual voluntary arrangement begins, the IVA will appear on your credit report, which may hinder your ability to obtain additional credit. During this time, lenders may view you as a higher risk, resulting in stricter lending criteria and higher interest rates.

Are all creditors included in an IVA?

When undertaking an IVA, creditors holding unsecured debts are typically included. This means the monthly payments are divided between them, making managing all your creditors and financial obligations more straightforward. However, secured debts and certain priority debts, such as child support or recent tax arrears, are excluded from the IVA.

How are monthly IVA repayments determined?

Your financial situation determines your monthly IVA payments. Your insolvency practitioner will evaluate your income and expenses to determine a manageable monthly payment that ensures you have sufficient funds for essential living expenses. This monthly contribution will be distributed to your creditors as part of the legally binding arrangement.

Can I take a payment break during an IVA?

Yes, suspending payments during an IVA may be possible if you encounter transient financial difficulties. You must discuss your situation with your insolvency practitioner, who can determine whether a payment suspension is appropriate. In certain instances, they may adjust your monthly payments or extend the duration of the IVA to have enough money to accommodate your altered financial situation.

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