IVAs – Frequently Asked Questions
Deciding on an IVA is a big decision – and one that can impact your financial life for a number of years. As such, it’s absolutely normal that people have a lot of questions.
We’ve covered as many of those questions as possible here:
What is an IVA?
An IVA (short for Individual Voluntary Arrangement) is a legally binding and government recognised agreement that helps people to manage their debt. The legal nature of the arrangement means a qualified insolvency practitioner is required to set it up – but when it is, you’ll repay only what you can afford when your monthly living expenses are covered.
An IVA runs for a set period of time – after which any amount left outstanding is written off by your creditors.
How do I get an IVA?
You can start the IVA process by speaking to the insolvency practitioners of your choice. They will have a process in place that helps you through the first steps, which will include assessing how much you owe, who you owe it to – and what your monthly incomings and outgoings are.
How does an IVA work?
Your insolvency practitioner will help you to understand what you can afford to pay toward your debts each month. From that point, they communicate with your creditors and propose a repayment over a set period of time. Not all of your creditors have to agree – but if most do, you’ll make a payment to your insolvency practitioner who’ll then repay each of your creditors from that amount.
How do I decide on an insolvency practitioner?
There are many insolvency practitioners who are qualified to represent you as part of your IVA – but you’re always best to find one that reputable and has a number of satisfied customers; good communication is very important through the IVA process.
How long does an IVA last?
An IVA usually lasts for 60 months (5 years) – and while that might sound like a long time, you should remember that you’ll be debt free when that time is up, often having repaid a lot less than you would if you continued to struggle by yourself.
Do I have to talk to my creditors about an IVA?
No. As part of your agreement your insolvency practitioner will communicate with your creditors on your behalf. This means that any contact you have after your application can be passed over to the insolvency practitioner immediately, with no need to explain yourself of the process that’s occurring.
What kind of debts will an IVA cover?
Legally, there’s no type of debt that can’t be included in an IVA, although you’ll find that most creditors will not accept the IVA proposal if your debt is secured (i.e. a mortgage, secured loan or hire purchase agreement).
As long as the debt isn’t secured, the chances are you’ll be able to include it in your IVA. If you’re not sure, speak to your insolvency practitioner will all the details of the debt you owe.
Is there a limit to the amount I can owe?
No. An IVA has no upper limit – but you must owe more than £7,000 in unsecured debt to 2 or more creditors.
How much could I have written off?
The amount you can have written off depends on you and your specific circumstances – but will typically be between 25% and 75% of the overall amount you owe.
Will I pay interest on my debts?
No. When your creditors agree to being repaid through an IVA the interest (as well as any additional charges that can be added) will be frozen. When you’re in debt and missing payments, these charges can quickly add up – so it’s important to act quickly to keep your overall debt amount to a minimum.
What happens if I miss a payment?
Missing payments on an IVA is possible – but it’s absolutely CRUCIAL that you do not do so without first having your insolvency practitioner approve it first.
With normal debts, a missed payment will start a recovery process, usually meaning letters, reminders and further action. With an IVA this will not happen, instead, the IVA will fail – and your creditors can quickly move to have you made bankrupt.
Your insolvency practitioner can authorise payment gaps though – which is extremely useful when unexpected life expenses crop up.
What happens if my creditors are seeking legal action already?
When you apply for an IVA your insolvency practitioner will apply for an ‘interim order’ which stops your creditors pursuing any legal action until the IVA process is complete. This means that any legal action you’re facing (even if you’re expecting a visit from bailiffs) will be paused, while the process is set up.
How much does an IVA cost?
The cost of an IVA varies but will include the professional services of the insolvency practitioner and the support they and their organisation offer you for the full 5 years of the agreement.
Don’t worry though, the amount they charge will be built into the monthly repayment you make, so you won’t be landed with a large bill before or after the process.
What happens if I come into money during an IVA?
It’s possible that you can receive unexpected money when you have an IVA – and, since there’s a legal obligation for the insolvency practitioner to assess your finances each year, they will see any amount that’s paid into your bank.
While smaller amounts might not change how much you can afford to repay each month, larger amounts (usually running into thousands or more) can, so it’s important that you talk to your insolvency practitioner after any inheritance, prize wins or similar.
Can I keep my credit card?
You cannot have any credit while you have an IVA – this includes credit cards, even if you only plan to use them in emergencies.
Am I allowed a bank account?
Yes. Some people think you can’t have a debit card or current account – but you can, you just can’t have an overdraft or any other type of credit that’s associated with that account.