What Is an IVA and How Does It Work? A Simple Beginner's Guide

Introduction

If you're feeling overwhelmed by debt, you may have come across the term Individual Voluntary Arrangement (IVA). This guide aims to provide a clear understanding of what an IVA is, how it works, and whether it could be a viable option for your financial situation.

What Is an IVA?

An Individual Voluntary Arrangement (IVA) is a formal agreement between you and your creditors to pay back a portion of your debts over a set period, typically five to six years. It is legally binding, meaning that once approved, your creditors cannot pursue you for the debts included in the IVA.

Key Features of an IVA

• Legally Binding: Once an IVA is in place, it is legally binding for both you and your creditors.
• Fixed Repayment Period: IVAs usually last for five to six years, during which you make regular payments.
• Debt Write-off: At the end of the IVA, any remaining unpaid debt may be written off, depending on your circumstances.
• Protection from Creditors: Creditors cannot take further action against you for debts included in the IVA.

How Does an IVA Work?

The process of setting up an IVA involves several key steps:

1. Assessing Your Financial Situation

The first step is to evaluate your financial situation. This includes listing all your debts, income, and essential expenses. Understanding your financial position is crucial in determining whether an IVA is suitable for you.

2. Seeking Professional Advice

It is advisable to seek professional advice from a qualified insolvency practitioner. They can guide you through the process and help you understand your options. You can find support through various organisations, including:

• MoneyHelper
• Citizens Advice
• National Debtline

3. Proposal Submission

Your insolvency practitioner will help you draft a proposal outlining how much you can afford to pay and how long the IVA will last. This proposal is then submitted to your creditors for approval.

4. Creditor Meeting

A meeting is held where creditors can vote on whether to accept the proposal. For the IVA to be approved, at least 75% of the creditors (by value of the debt) must agree to it.

5. Making Payments

If approved, you will start making regular payments to your insolvency practitioner, who will distribute the funds to your creditors. These payments are based on what you can afford after covering essential living expenses.

6. Completion of the IVA

Once you have completed the agreed payments over the set period, any remaining debt included in the IVA may be written off. You will receive a completion certificate, which confirms that you have fulfilled your obligations.

Is an IVA Right for You?

While an IVA can be a helpful solution for many, it is not suitable for everyone. Here are some factors to consider:

• Amount of Debt: IVAs are typically suitable for individuals with unsecured debts of £5,000 or more.
• Affordability: You must be able to demonstrate that you can make regular payments towards your debts.
• Impact on Credit Rating: An IVA will affect your credit rating and remain on your credit file for six years from the start date.

Conclusion

An Individual Voluntary Arrangement can provide a structured way to manage your debts and offer relief from financial stress. However, it is essential to seek professional advice to ensure it aligns with your individual circumstances. Understanding your options is the first step towards regaining control of your finances.

If you're considering an IVA or want to explore your options further, check your options today.