IVAs: How do they work?
An IVA (Individual Voluntary Arrangement) is designed to help people with a high level of unsecured debt, who can't afford to repay it all but can (in most cases) commit to making regular reduced monthly payments. If you are in this situation, then an IVA could be the right way out of debt for you.
IVAs are often seen as a preferable alternative to bankruptcy, partly because they are highly unlikely to force the sale of your home - yet they can still write off the portion of your debt that you can't afford to repay.
If you are in debt, and you are considering entering an IVA, then it is vital you understand exactly how they work before committing to one.
Step one: Speak to a debt adviser
Before entering an IVA, you will have to speak to a professional debt adviser about your current financial situation. You may find that a different debt solution would be better for your circumstances.
However, if an IVA looks to be the most appropriate debt solution for you and you decide to enter one, your IP (Insolvency Practitioner) will work with you and help you put together a proposal to give to your creditors. Known as an IVA Proposal, this will include various pieces of information - for example, your current financial circumstances and how much each of your creditors is likely to receive if the IVA goes ahead.
Step two: Creditors review IVA
Your creditors will each receive a copy of your proposal, and will get a chance to vote for or against it.
In order for the IVA to go ahead, creditors who collectively 'own' 75% or more of your debt must agree to the terms.
Step three: The IVA starts
When you start your IVA, interest on your debts will be frozen and you will begin making the agreed payments to your IP. Your IP will subsequently distribute this money amongst your creditors as agreed. Usually, you will make those payments for 5 years.
An IVA is a formal, legally binding agreement which means that once it has started, your creditors cannot change the terms of the agreement, or withdraw from it - unless you fail to abide by the terms.
Step four: Release of equity
If you are a homeowner; you may be required to release some of the equity in your home half way through the final year of your agreement (in order to repay more of your debt).
Step five: IVA (usually) finishes after 60 months
Once you have made your final payment, the IVA will come to a successful conclusion, and any outstanding debt will be written off. The final payment is usually made in the 60th month of the agreement. However, this may vary depending the terms of the IVA, and whether you have missed any payments.
Although legally you will be debt-free, the IVA will remain on your credit report for another year, which could make further credit harder and/or more expensive to obtain.
IVAs are often seen as a preferable alternative to bankruptcy, partly because they are highly unlikely to force the sale of your home - yet they can still write off the portion of your debt that you can't afford to repay.
If you are in debt, and you are considering entering an IVA, then it is vital you understand exactly how they work before committing to one.
Step one: Speak to a debt adviser
Before entering an IVA, you will have to speak to a professional debt adviser about your current financial situation. You may find that a different debt solution would be better for your circumstances.
However, if an IVA looks to be the most appropriate debt solution for you and you decide to enter one, your IP (Insolvency Practitioner) will work with you and help you put together a proposal to give to your creditors. Known as an IVA Proposal, this will include various pieces of information - for example, your current financial circumstances and how much each of your creditors is likely to receive if the IVA goes ahead.
Step two: Creditors review IVA
Your creditors will each receive a copy of your proposal, and will get a chance to vote for or against it.
In order for the IVA to go ahead, creditors who collectively 'own' 75% or more of your debt must agree to the terms.
Step three: The IVA starts
When you start your IVA, interest on your debts will be frozen and you will begin making the agreed payments to your IP. Your IP will subsequently distribute this money amongst your creditors as agreed. Usually, you will make those payments for 5 years.
An IVA is a formal, legally binding agreement which means that once it has started, your creditors cannot change the terms of the agreement, or withdraw from it - unless you fail to abide by the terms.
Step four: Release of equity
If you are a homeowner; you may be required to release some of the equity in your home half way through the final year of your agreement (in order to repay more of your debt).
Step five: IVA (usually) finishes after 60 months
Once you have made your final payment, the IVA will come to a successful conclusion, and any outstanding debt will be written off. The final payment is usually made in the 60th month of the agreement. However, this may vary depending the terms of the IVA, and whether you have missed any payments.
Although legally you will be debt-free, the IVA will remain on your credit report for another year, which could make further credit harder and/or more expensive to obtain.
