Individual Voluntary Arrangements
An IVA is a court sanctioned agreement made with your creditors to pay off your debts over a set period of time – usually 60 months – and is one option you can use to pay off your debts. They are set up by an insolvency practitioner, who is usually a solicitor or an accountant.
IVAs can be set up to suit your needs, but they can be expensive and there are risks to consider. For example, if you default on payments and exit the IVA, your creditors could start pursuing you again to set up separate monthly payments, or you could even be made bankrupt (which seldom happens, to be fair).
Most non-priority debts can be included in an IVA, including:
- bank and building society loans and overdrafts
- credit cards
- store cards / charge cards / catalogues
You can also include priority debts such as:
- council tax arrears
- tax debts
- electricity and gas debts
Debts you can’t include in an IVA are:
- maintenance arrears that have been ordered by a court
- student loans
- Magistrate’s court fines.
If some of your debts were taken jointly with another person, it might not always be appropriate to include these in an IVA, as the other person might still be liable for any debt left at the end of the IVA. People taking out debts in both names are ‘jointly and severally liable’, which means you are both liable for the full amount of the debt, not half each.
Please note: You can’t take out an IVA jointly with the other person who shares your debt (it is, after all, an Individual Voluntary Arrangement). If you have a number of joint debts, an IVA might not be a suitable solution for you.
An IVA may be right for you if:
- you have at least £100 spare income each month (this will be the absolute minimum)
- you have at least two separate debts
- you have debts totaling over £10,000 (many IVA companies will not consider less than £15,000)
- you don’t wish to deal with your creditors directly
- You will be tied into the IVA for a minimum of 60 months (72 months if you own a property)
- The set up costs can run into the thousands of pounds and this often negates the initial advantage of having a percentage of your ‘debt written off due to Government legislation’
- If you own a property, the IVA will be in place for a minimum of 72 months
- Property owners will be obliged to remortgage after four years to release funds for the creditors. If this is not possible – and it rarely is – the term of the IVA is extended.
- IVAs have exactly the same effect on your credit rating as bankruptcy. As this is a court sanctioned arrangement, it appears on the Insolvency Register, as do bankruptcies and Debt Relief Orders.
- They are of little or no use to people living in rented and holding down everyday jobs. If you have few assets and your job is not threatened by bankruptcy – very few are – then bankruptcy is probably the best route.
The prime reason for entering into an IVA is to protect assets. If you are in rented with an everyday job, then an IVA is a very expensive debt solution. In these circumstances, and especially if you have more than £15,000 debt, bankruptcy is the better solution.