Individual voluntary arrangements – the facts

There are many different solutions available these days for people that are in huge levels of debt and who are finding it difficult to keep up with repayments on their debts. One of these is known as the IVA or the Individual Voluntary Arrangement, which has increased enormously in popularity over recent years.

This type of programme is considered a softer alternative to bankruptcy, although the effects of going through an IVA can be lost lasting in the same way as bankruptcy, and so this process should not be taken lightly and should be given careful consideration.

An IVA can prove to be an effective solution for some people, but it is important that you seek advice and assistance, as well as looking at other solutions, before you make up your mind.

You will also need to ensure that you meet the eligibility requirements otherwise there is little point in looking at an IVA as the eligibility requirements are strict. Below are some frequently asked questions relating to IVAs:

When were IVAs introduced?

IVAs were introduced in the 1980s as a softer alternative to bankruptcy for those that are in high levels of debt. However, many people did not know what an IVA was until recently.

The high levels of debt in the UK has now resulted in a number of debt companies advertising IVAs via glossy advertisements, and this has resulted in an increasing number of people being aware of the availability of IVAs and an increase in the number of IVA applications as a result of this.

What exactly is an IVA?

An IVA is a legal contract that is made between the borrower and his or her creditors. This is a binding contract, and entails coming to an arrangement with regards to a new, affordable monthly repayment on a debt, which is paid for a specified period of time, after which the remainder of the debt is written off.

How much would I have to pay if I was on an IVA programme?

This would vary based on your circumstances. However, the monthly repayment will be worked out based on your income and outgoings and will be a repayment that is affordable to you based on the amount of money that you earn and have to pay out each month.

A specialist will look at your budget when going through the IVA programme and will determine how much you will have to repay each month. The amount that you pay will then be distributed on a pro-rata basis to each of your creditors.

What are the eligibility requirements to be accepted for an IVA?

In order to be considered for an IVA you will need to meet certain eligibility criteria. This includes you or your partner being in full time employment, being in at least £15,000 of unsecured debt, and having enough disposable income to meet certain minimum repayment requirements.

If I meet these requirements will I definitely be able to go for an IVA?

No, not necessarily. Although meeting the requirements will enable you to be considered for an IVA in order for the programme to be accepted you must receive a majority approval from your creditors. If this does not happen then the IVA cannot go ahead.

Can my secured debts be included in the IVA?

No, only unsecured debts can be part of an IVA. Any secured loans and mortgage debt cannot be included, and will remain your own responsibility on which you should maintain your repayments.

What are the main benefits of an IVA?

There are a number of benefits to opting for an IVA if you are eligible.

This includes enjoying affordable monthly repayments based on your income and outgoings, the prospect of being debt free in five years, having up to 75% of your debt written off as part of the programme, and eliminating stressful creditor hassle often experienced by those that are unable to keep up with their debt repayments.

Who should I contact to find out if I am eligible for an IVA?

There are a number of companies in operation that claim to be experts in IVAs. However, although they may have the necessary knowledge many are more interested in making a profit and may pressure you into opting for an IVA from which they will receive a hefty fee.

Instead, consider speaking to a debt charity or the Citizen’s Advice Bureau, who will be able to offer impartial advice and point you in the right direction.

What is the downside to an IVA?

There are a number of things to bear in mind about an IVA. Firstly, this is not a quick fix, and it can take time for the IVA to be set up, so the process can drag on somewhat. Secondly, an IVA can have a serious impact on your credit rating, and this means that your financial future can be seriously affected.