An Individual Voluntary Arrangement (IVA) is an alternative to bankruptcy for people who are unable to repay their debt. Usually people enter an IVA because they realise they will have to pay to enter bankruptcy anyway and would rather repay as much of their debt as possible. The stigma associated with bankruptcy means that an IVA is often preferred.
IVA’s are a popular debt solution in England, Wales and Northern Ireland. Typically 40,000 people enter this debt solution every year.
You are able to clear the debt you cannot afford to repay in an IVA. In a bankruptcy you have fees and charges to pay upfront, such as the administration and court fees. If you decide to enter an IVA and your IVA company has decided to charge you an upfront fee then question what this is for. Most providers don’t charge you an upfront fee, however some companies will place you in a debt management plan for 6 months to maximise their profits! Avoid companies like this like the plague.
Writing off debt in an IVA is usually what happens, however if you are in a position whilst in the IVA to repay all of your debt then you must do this.
An IVA has negative consequences which most websites and organisations rarely explain. The reasons not to enter an IVA are primarily that it may affect the equity in your house, it will damage your credit file and sometimes it will affect your job.
In an IVA your assets must be evaluated. You are able to keep your house in an IVA but the equity, if any, must be released via a third party or a remortgage. If you can’t do this – because nobody will lend you the money or the availability of credit is poor – then you can extend the IVA payments for an extra year. This will mean you won’t have to release the equity and can keep your house.
Your credit file will receive a default which will last for 6 years from the date it’s added. This means getting accepted for credit is not going to be easy in the future, but in truth it’s not impossible.
Some people working in the financial services sector will have a contract stating they can’t enter an IVA. Always check your contract of employment on this subject because if it doesn’t mention it in there then it’s not a problem for your current position.
- You can enter a joint IVA with your partner, when in bankruptcy you would have to pay the fees individually.
- Your rarely lose your house in an IVA. If you have equity in your house you will have to remortgage to release this equity. If a remortgage is impossible then your IVA is extended for an extra year. This means you will get to keep the equity in your house however your IVA would last for 6 years.
- If you have a car the equity is considered at the end of the IVA. As cars depreciate in value over time, it means you are more likely to be able to keep your car.
- If you are paying your hire purchase (HP) payments towards your car and there are 3 years left, then your IVA payments may increase at the end of the IVA because the car will be repaid and you should have increased disposable income to repay more of your debt.
- If you come into money (inheritance, lottery win etc) then under an IVA this must be included for your
Professional IVA Advice
Always seek professional debt advice from a registered charity before entering an IVA.
If a fruit market only sells apples and bananas but you want an orange, then they can’t offer you an orange, but they can sell you an apple or banana. In a similar sense, if an IVA company sells IVAs then they are far more likely to try and offer you an IVA when a Debt Management Plan may be better suited.
Speak to a qualified debt advice & IVA charity like Debt Support Trust or your local Citizens Advice Bureau.