Individual Voluntary Arrangements

Individual Voluntary Arrangements | December 2023

IVAs, also called individual voluntary agreements, offer a structured approach to debt management. This binding contract enables debtors to combine their debts into a single monthly payment. 

Working with an insolvency professional to create a manageable payment plan is part of the process.

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Understanding Individual Voluntary Arrangements

An Individual Voluntary Arrangement (IVA) is a formal, binding debt settlement between debtors and their creditors. For the duration of the agreement, regular payments must be made towards the debt. This period typically lasts five years.

The first step in an IVA is to get free debt counselling from an insolvency professional or a debt counselling organisation. A debt counsellor evaluates your financial situation by considering your income, debts, and necessary living expenses. 

Then, they advise you whether an IVA is the best debt solution. Your monthly payments are described in the IVA proposal, created by the insolvency practitioner, along with how much you can pay each month. 

Your creditors are then asked to accept the proposal. The IVA is a binding agreement if most creditors accept the terms.

Once the IVA is established, you pay a set amount regularly to the insolvency practitioner, who then distributes it to your creditors. Because the IVA aims to make your debts more manageable, the amount you owe is frequently less than the total debt.

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Benefits of Individual Voluntary Arrangements

One of its main advantages is that an IVA offers a structured approach to managing your debts. Making a single monthly payment makes managing your finances simpler than managing several debts.

The fact that an IVA is enforceable in court is a significant benefit. Once an IVA is established, your creditors cannot pursue further legal action against you to collect your debts. They must abide by the agreement if you make your IVA payments on time.

A portion of your debt may be written off as part of an IVA, giving you a fresh financial start after the IVA is complete. However, how much you can repay will depend on your financial situation.

Additionally, an IVA can stop new fees and interest from being added to your debts, which can help slow the growth of your debt. Remember that not all types of debts may fall under this category; for example, arrears on a mortgage or rent payment must be handled separately.

Steps to Initiate an Individual Voluntary Arrangement

Getting advice from a debt adviser or an insolvency practitioner is the first step in starting an IVA. They will evaluate your financial situation when determining whether an IVA is the best way to handle your debts. 

They can also direct debt-relief options like bankruptcy or a debt management plan. Preparing your IVA proposal with the insolvency practitioner is the next step. Your income, debts, and expenses for a living are all included in this. 

It also specifies how long the IVA will last and how much you can pay monthly. The proposal is then sent to your creditors for approval after being prepared. If most of your creditors accept the terms, the IVA is implemented. 

Following that, you must continue making your regular monthly payments throughout the IVA.

You must let your insolvency practitioner know if your financial situation changes during the IVA, such as a pay rise or an increase in your living expenses. After that, they can modify your monthly payments appropriately.

Individual Voluntary Arrangements

Parties Involved in Individual Voluntary Arrangements

In an IVA, several parties are involved. The person who owes money is the debtor in the first place. They must make the regular payments outlined in the IVA proposal.

The people or organisations to which the debtor owes money are the creditors, who come next. The IVA proposal can either be accepted or rejected by them. Even if some individual creditors disagree, the IVA is binding on all creditors if most agree to its terms.

In an IVA, the insolvency practitioner is crucial. They evaluate the debtor’s financial situation as independent professionals, draft the IVA proposal, and distribute payments to the creditors.

Finally, organisations offering debt advice offer free counsel to those considering an IVA. They can aid in determining whether an IVA is the best course of action and assist those who need assistance.

An Individual Voluntary Arrangement (IVA) is a formal, binding debt settlement between debtors and their creditors.

Role of Insolvency Practitioner in IVA

In an IVA, the insolvency practitioner is essential. They are qualified professionals in charge of directing the entire IVA procedure. The insolvency practitioner will first evaluate your financial situation. Your income, debts, and daily expenses are all included in this. 

They will then advise on whether an IVA is the best option for you. The insolvency practitioner will draft the IVA proposal if an IVA is determined to be appropriate. This spells out your monthly payment obligations, including your financial capacity.

The insolvency practitioner collects and distributes your payments to creditors once the IVA is in place. Throughout the IVA, they also keep an eye on your financial situation. They have the right to change your payments if your situation changes.

The insolvency practitioner must also finish the final review of your IVA. The insolvency practitioner will issue a certificate of completion if you have complied with the terms of your IVA and made all of your required payments. 

Your IVA ends at this point, and your new financial life begins.

Understanding Individual Voluntary Arrangements

Potential Risks and Challenges 

Even though an IVA can be a good debt solution, there are potential risks and difficulties. Your credit rating may be impacted by an IVA, which is a significant risk. Your credit report will reflect an IVA for six years, making it more challenging to get new credit.

You might need to release equity from your home to pay your creditors, which is another risk. This might entail getting a secured loan or remortgageing your home. On the other hand, this will depend on your financial situation and the terms of your IVA.

Your creditors may file for bankruptcy if your IVA fails, for example, if you cannot make payments. Your financial situation would be severely impacted, and your assets might be lost.

It’s also important to remember that not all debts qualify for an IVA. Two examples of excluded debts are arrears on child support payments and student loans. These debts will need to be handled separately.

Impact on Credit Score and Future Financing

An IVA may significantly impact your credit score. Even if you finish your IVA early, it will remain on your credit report for six years. Due to this, it might be more challenging to get new credit at this time.

Additionally, your information will be included in the public individual insolvency register, which keeps track of all insolvencies. This may affect your ability to obtain future financing because creditors frequently look at this register when determining creditworthiness.

You can rebuild your credit score after your IVA is finished and the entry has been deleted from your credit report. You can achieve this by responsibly managing your finances and making on-time payments on any outstanding debts.

It’s essential to keep in mind that receiving an IVA may have an impact on your employment. According to some employment contracts, you cannot be insolvent, prohibiting having an IVA. 

Reviewing your agreement or consulting with your HR department is crucial for an IVA.

Benefits of Individual Voluntary Arrangements

Alternatives to Individual Voluntary Arrangements

Although an IVA is not the only option, it can be a good one for many people. Depending on your situation, several other debt relief options may be preferable.

An informal arrangement between you and your creditors to repay your debts is known as a Debt Management Plan (DMP). A DMP can be more flexible and is not legally binding, unlike an IVA. However, using a DMP to repay your debts typically requires more time.

Bankruptcy is an additional choice. This status exists for those legally unable to pay back their debts. Even though bankruptcy can eliminate your debts, it adversely affects your credit score and may cause you to lose your assets.

Finally, if you have little income, few assets, and debts under a certain amount, a Debt Relief Order (DRO) is a way to write off your debts. A DRO has strict eligibility requirements but is less expensive than an IVA or bankruptcy.

Getting independent advice before deciding on an IVA or another debt solution. This guarantees you are aware of all your options and can choose the most effective debt management strategy.

The IVA: A Comprehensive Debt Management Solution

The Individual Voluntary Arrangement (IVA), a comprehensive debt management strategy, is carried out with the assistance of a registered insolvency practitioner (IP). The IP serves as the IVA provider and oversees the contract with each of your creditors. 

They are responsible for ensuring that the IVA terms are followed and that the monthly contribution is distributed correctly. An IVA can include secured loans like mortgages, unsecured debts like credit cards, and personal loan balances. 

However, the treatment of secured loans and mortgage arrears in an IVA differs and must be understood. If you have rent or mortgage arrears, you must take care of these separately.IVAs cover more than just debts. It also takes into account your overall financial situation. 

You can consider your income tax, bank accounts, and joint debts. An IP ensures you have enough money to pay your basic expenses while still fulfilling your IVA obligations.

Impact of an IVA on Personal Finances

An Individual Voluntary Arrangement (IVA) may significantly impact your financial situation. Your credit report is one of the major areas it affects. Your IVA is recorded by credit reference agencies, which may have a six-year impact on your credit score. 

Because of this, it might be harder to get more credit or secure a remortgage during this time. Despite these difficulties, many believe an IVA has more advantages than disadvantages. 

It is a relief to have the chance to pay off a sizable portion of your debt and avoid bankruptcy. Before making a choice, though, receiving free counsel from a debt management organisation or an impartial advisor is imperative.

Applying for an IVA: What to Expect

IVA applications can be intimidating, but a competent IP or debt adviser can help you navigate them. You must evaluate your financial situation to decide whether an IVA is best. Reviewing your monthly expenses, debts, and income is part of this process. 

The IP will also consider any future adjustments to your financial situation, such as a pay rise or a drop in your available income. Your IP will assist you in creating an IVA proposal if an IVA is determined to be appropriate. 

This outlines the conditions of your contract, including the monthly payment amount. Your creditors are then asked to approve this proposal.

Remembering that an IVA is a contract with legal force is crucial. If approved, you’ll have to make your monthly payments on time. If you don’t, the IVA could fall through, and your creditors might file a bankruptcy petition on your behalf.

Coping with Changes During an IVA

Even during an IVA, life continues. Your IVA must reflect any potential changes in your financial situation. You must notify your IP if you get a pay rise, inherit money, or your living expenses change. Your monthly contribution may be adjusted accordingly.

Similarly, your IP can assist you if you’re having trouble making payments. To help you in staying on track, they suggest a payment break or a one-time fee. Remember that an IVA is intended to reduce your debt rather than add to your financial stress.

End of the IVA Journey

After your IVA, any outstanding debts under the agreement will be written off. Additionally, your name will be struck from the personal insolvency register. Even if you finish your IVA early, the IVA will remain on your credit report for six years from the start date.

Remember that your financial journey doesn’t end when the IVA is over. You can rebuild your credit score and work towards a more secure financial future at the beginning of this new chapter.

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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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