What is an IVA?

An Individual Voluntary Arrangement or IVA is a legally binding contract between a debtor and their creditors, supervised by a Licensed Insolvency Practitioner. The purpose of the IVA is to enable you to reach a compromise with the creditors and avoid the consequences of bankruptcy.

It is less restrictive than bankruptcy but is governed by similar legislation, thus providing the comfort of legal protection and the knowledge that the process is handled by a qualified Insolvency Practitioner who acts as a Supervisor during the term of the IVA.

Scotland: Different legislation applies - see Trust Deeds.

An IVA is available to all individuals, Sole Traders and Partners (domiciled in England and Wales) who are insolvent and are experiencing creditor pressure. It can be used by those who own their own property and wish to avoid the possibility of losing it in the event they were made bankrupt. You can also sign an IVA if you live in rented accommodation.

You need to have debts over £15,000 and owe money to a minimum of three separate creditors. Usually a payment of at least £200 p/m or more will be required for the IVA to be accepted and at least 25p in the £ will need to be recovered. The higher the dividend, the stronger the case and the more likely that it will be accepted. You need to be in full or part time employment, over the age of eighteen and the IVA must not take you past normal retirement age.

Whither or not an IVA is suitable you must have control over your spending for it to be successful. Use our free SOA tool to find out where you can make savings and how to gain control over your spending

Pros
• Interest and charges are frozen.
• Monthly payment is based on what you can afford.
• Debt free in 5 years.
• You will pay no direct fees. The Insolvency Practitioner will collect his fees from your contributions to the creditor.
• No more creditor contact throughout the term of the arrangement.
• Avoid all of the unfavourable stigma and restrictions of bankruptcy.
• Legal action and collection action will stop.
• Compels you to address your financial management issues.
• Removal of the temptation to get further into debt.

Cons
• Require a minimum debt level of £15,000.
• In order for the IVA to be agreed, you require approval to the value of 75% of the unsecured creditors .
• Your home and assets may still be at risk if the creditors decide not to exclude them.
• You may find getting credit in the future more expensive. Creditors will assess your risk level based on your financial history.
• You will not be able to use your store or credit cards. These will be cut up.
• You will normally not be allowed to borrow any more money until you have successfully completed your arrangement. It may however be possible to change an existing mortgage or take a new one while you are in an IVA .
• If the IVA fails as a consequence of you not meeting your obligations, it is likely that you will be made bankrupt.

Only insolvency practitioners are allowed to carry out IVA's. All IP's are regulated by professional bodies. If you wish to make a complaint about an IP, find out how here .

Bankruptcy and Debt Management.

Contact an insolvency practitioner. Before they take you on, you should speak to them about their fee structure and get it agreed before they carry out any work on your behalf.

It takes roughly about 2 months to get an IVA started. This will vary dependent upon the number of creditors.

Credit rating will be severely impacted for a period of 6 years in total. During this time, you will have NO access to credit of any kind - five years whilst on the plan and then for a further year (as it usually takes this period to build the credit rating back up). Although this may seem harsh, it is actually a good thing as you are forced to live within your means, balancing what you spend with what you earn.

Who?
Only an Insolvency Practitioner (IP) can administer an IVA . It's worth shopping around for an IP with whom you are confident. A list of IP's can be obtained here.

How much?
When it comes to fees, again shop around. Fees will be taken from what you offer the creditors, therefore, it will impact on their dividend and acceptance criteria. Should the fees impact on the acceptance criteria, try to negotiate a lower fee from your IP.

Complete our SOA and get your finances back in control. Once you complete your SOA you'll find that you understand where the solution lies to your financial problems.

And remember - our forum is here to offer you help and advice whenever you need it.

Don't let your debts drive you down the highway of despair - take back the controls and get on the road to financial happiness.