- 1 What is an IVA?
- 2 Self-employed IVA
- 3 IVA FAQs
- 4 Pros and Cons of IVAs
- 5 IVA and Mortgages
- 6 Paying an IVA off Early
- 7 IVA vs Debt Management Plan
- 8 How can an IVA fail?
- 9 IVA Register – How does it work?
- 10 IVA Time Limits
- 11 IVA vs Bankruptcy
- 12 IVA Completion Certificate
But what exactly is an IVA? How do they work? How can I apply? Is it worth it? To learn more, read on and click through to our detailed guides.
What is an IVA?
An Individual Voluntary Arrangement (IVA) is a legally binding agreement between a debtor and their creditors to repay what they owe over an extended period of time, at a rate that is affordable for them. It’s a court-approved debt solution and is only available to debtors in England, Wales and Northern Ireland.
A self-employed IVA is a formal debt management solution that has been specifically designed for those who work for themselves or own their own company. As with other IVAs, a self-employed IVA allows eligible debtors to pay off part of their debt over a fixed time period. At the end of this window (which typically lasts around 5 to 6 years), any unsecured debts that were included in the agreement (whether business or personal) will be written off.
During the period of the IVA, you will need to agree and stick to a budget whilst making affordable monthly payments to an Insolvency Practitioner, who will distribute the funds to your creditors. An IVA can be a realistic alternative to bankruptcy for self-employed people, allowing them to continue trading and earning money whilst dealing with their debts.
Let’s take a look at the most frequently asked questions about IVA:
How does an individual voluntary arrangement work?
An IVA is comparable to a formal repayment plan and is available to debtors in England, Wales and Northern Ireland who are able to pay some money towards their debts, but not the full amount. An IVA must be set up by a qualified Insolvency Practitioner (often an accountant or solicitor) who, for a fee, can help you to come to an agreement with any companies to which you owe money and deal with the ongoing administration of your IVA which includes distributing monthly repayments between your creditors. For an IVA to come into effect, the creditors holding 75% of your debt need to agree to the arrangement.
What does a voluntary arrangement mean?
Having an IVA in place can help you to manage your debts by consolidating them into one affordable monthly payment. It will involve setting a budget and repayment plan, the latter of which could be made up of monthly repayments, a lump sum or a combination of the two. Once an IVA is agreed, the creditors involved will freeze any charges or interest accruing against the debt to prevent the sum you owe from growing further. Any qualifying debt that remains at the end of the IVA period (which usually runs for 5 to 6 years) will be written off.
How badly does an IVA affect your credit score?
As is the case with many other debt solutions, having an IVA will impact on your credit score and you may find it much more difficult to access further credit in the short term. Details of an IVA will be included on your credit report for 6 years from the date the arrangement starts, whilst your details will also be included on the Individual Insolvency Register until 3 months after IVA has run its course. If you do seek additional credit whilst of more than £500 whilst you are subject to an IVA, in most cases, you will require written permission from your Insolvency Practitioner.
How does an IVA affect your life?
An IVA can be a viable route out of debt for some people, but this form of insolvency solution can also affect your day-to-day life. If you own expensive assets such as antiques, vehicles or jewellery, you may be asked to consider selling them to contribute towards your debts. If you own your own home, you may be required to re-mortgage the property to pay a lump sum towards your IVA. How an IVA will affect your life is highly dependent on your personal circumstances, and an Insolvency Practitioner will be able to talk you through how dealing with debt in this way might impact on you.
Pros and Cons of IVAs
IVAs can be very beneficial for some debtors, but they also come with their own set of disadvantages and what’s right for one person might not work for another and anybody considering a debt solution should seek out qualified financial advice.
A good example of this is that whilst an IVA can stop creditors chasing you for payments or adding further interest and charges onto your debt, you may find it incredibly difficult to access any additional lending and your credit score can be seriously affected.
For more information, read our overview of the pros and cons of IVAs HERE.
IVA and Mortgages
It’s unlikely that you’ll be able to get a new mortgage if you have an IVA in place. For one thing, you will require the written permission of your Insolvency Practitioner if you wish to take out additional credit of more than £500 during the course of an IVA. You may also struggle to find a lender who is willing to offer you a new mortgage whilst you’re on an IVA as your credit file will have been impacted.
The terms of your IVA may include provisions that relate to re-mortgaging your property if you are a homeowner. Re-mortgaging is not restricted by an IVA in the same way as other borrowing, as you are expected to put the money you borrow towards paying off your debts.
Paying an IVA off Early
It may be possible to finish your IVA early if the opportunity arises – for example if you receive a cash windfall from an inheritance or elsewhere. Although IVAs typically last for 5 to 6 years, there is no restriction on the minimum length of an IVA and the length of your agreement will depend on your personal circumstances.
If you’re considering paying an IVA off early, it’s important to consult your Insolvency Practitioner as doing so may come with fees and other consequences attached. Even if you do find a way to settle up early and gain the agreement of your creditors, the IVA will still be listed on your credit report for six years from the date it was approved.
Read our guide to paying off an IVA early to find out more.
IVA vs Debt Management Plan
IVAs and Debt Management Plans (DMPs) are both popular yet quite different solutions to debt problems. Neither of them is ‘better’ than the other, as the best debt solution for you will depend on your current situation and personal circumstances.
Unlike the court-approved approach taken by IVAs, a DMP is an informal arrangement reached between a debtor and their creditors to deal which may include freezing interest and charges against what is owed and making lower repayments. DMPs are often viewed as a flexible, temporary way of managing your debt during a change in circumstances or whilst you investigate other options. You can stop a DMP whenever you wish and adjust repayments as necessary with the agreement of your creditors.
By contrast, an IVA requires a more formal approach and the assistance of an Insolvency Practitioner. Unlike a DMP, entering into an IVA will lead to your name being added to the Insolvency Register but it does come with some additional protections. Creditors will no longer be able to contact you to chase repayments and an end date will be set, after which all included debts will be written off.
How can an IVA fail?
An IVA will only usually fail if you are no longer able to make the agreed repayments. In the event that your IVA fails, your debts will remain in place and your creditors will once again be able to take action against you, including applying to make you bankrupt.
If you are unable to make the agreed repayments under an IVA, speaking with your Insolvency Practitioner may help you to prevent the arrangement from failing. Ignoring the need to tell your insolvency practitioner about missing repayments or taking on further credit can prevent them from approaching your creditors and seeking their agreement to lower repayments.
IVA Register – How does it work?
If you enter into an IVA, your details will be added to the national Insolvency Register – a publicly available record that anyone can search. The information recorded to the register will include your name, address, date of birth, gender and the date that the IVA was approved. Your details will only be removed from the register 3 months after an IVA has reached its end date.
For further information about the UK’s national Insolvency Register, read out guide HERE.
IVA Time Limits
Although there is no minimum period for an IVA, they typically last for 5 to 6 years. The length of any debtor’s IVA will depend on their own circumstances and an Insolvency Practitioner will be able give advice on what an arrangement might look like for you.
IVA vs Bankruptcy
IVAs and bankruptcy are two forms of insolvency, but despite falling under the same bracket they work quite differently. Whilst they both have the potential to write off some or all of your debt, IVAs are frequently viewed as a less serious solution that is won’t usually affect your ability to get certain kinds of employment and won’t impact on your credit file quite so badly.
Bankruptcy, on the other hand, is usually discharged after 12 months which is a much shorter period than the typical 5 to 6 years for an IVA. This means that bankruptcy may deal with your debts within a much shorter window, although with some extremely serious consequences.
IVA Completion Certificate
An IVA competition certificate is issued at the end of an IVA to mark its completion and to confirm that you are no longer legally bound by the terms of the agreement you reached with your Insolvency Practitioner and creditors. When you receive a competition certificate, it means that your IVA process is over.
At the same time as you receive an IVA completion certificate, your Insolvency Practitioner will inform the Insolvency Service and they will prepare to remove you from the register – usually 3 months after the end of your IVA.
*According to official statistics from the Government Insolvency Service.