What is an IVA? What You Need to Know

What is an IVA?

An IVA (Individual Voluntary Arrangement) can be defined as a formal legally binding agreement made between an individual and creditors. The agreement highlights how a person is required to pay back their creditors. Since they are formal and legal, they must be approved by a court. IVAs can be flexible enough to suit the needs of the person who is in debt. However, they are generally expensive. An IVA can also attract some risks.

How an IVA works

IVAs are a form of insolvency like bankruptcy although they are different in many ways. For instance, an IVA must be prepared by an insolvency practitioner (a qualified person) who may be an accountant or lawyer.

Insolvency practitioners render their services at a fee which may vary from one practitioner to another. They deal with creditors on behalf of their clients for the entire IVA period.

Individuals who decide to get IVAs work out repayment plans with their insolvency practitioners. The repayment plan is then presented to creditors. If they agree to all the details in the plan, the agreement becomes valid, and all parties must adhere to it.

You must make monthly repayments as agreed. The money should be sent to the insolvency practitioner who then distributes the money to creditors as agreed. A portion of the monthly repayments is usually deducted by the insolvency practitioner as fees. It’s advisable to find out what your insolvency practitioner will

charge you before getting into an IVA. As mentioned above, some practitioners charge more than others.

When can you take an IVA?

IVAs can be taken to repay a variety of common debts ranging from; overdrafts and catalogue debts to personal loans, rent arrears or mortgage shortfalls. You can also consider taking an IVA to help you with your tax debt i.e., council tax arrears, income tax, national insurance contributions, court fines, student loans, etc. You can get a conclusive list of all the debt covered by IVAs in the Citizens Advice official website. [1]

Who can take an individual voluntary agreement?

You need to be in debt to consider taking an IVA given IVAs are necessary for lessening a person’s debt burden. What’s more; you need some spare income every month (at least £100). Most creditors don’t accept IVAs with payments less than £100. If you have more than one debt, you’ll need more money. However, there are exceptions to this if you have something valuable you can sell. Many creditors will overlook the amount of spare income or regular income you have if you own a valuable asset which you can sell and repay your debt periodically or with a lump sum. In a nutshell, anyone with debt burden and some regular income or valuable asset can qualify for an IVA.

Is an IVA a good option for you?

IVAs can be flexible allowing you some much needed time to repay multiple debts. You can reduce your monthly debt repayment by as much as 70% using an IVA. The agreement can also offer you some much-needed protection against creditor actions such as auctioning your property, petitioning for bankruptcy, etc.

However, they are usually expensive in the long-term and tend to come with other cons. For instance, you may not be able to save money or make important contributions like pension payments during the duration of the agreement. You may also be forced to re-mortgage your home/use any equity. An IVA can also affect your ability to get another job since IVAs are public. Anyone including potential employers can get access to your IVA. An IVA also appears on a

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person’s credit report for years (usually six years) which can make it hard to get loans in the future. Last but not least, your IVA may fail if your circumstances keep changing and you struggle making repayments. You must consider all the above before deciding whether or not an IVA is a good option for you.

What next after an IVA?

Most IVAs last for 5 to 6 years although the period can vary and usually ends after all the debt is settled. Once an IVA ends, the insolvency practitioner is supposed to issue a completion certificate. You should ask for one. The practitioner should also ensure your IVA record is removed from the insolvency register.

Important considerations

You should come up with a detailed budget before taking an IVA to ensure you can repay your preferred amount comfortably. It’s also advisable to take time and choose a reputable IVA provider to avoid high fees. A reputable provider will also ensure you get the best possible terms with your creditors.

Is the Company Director of Swift Money Limited.
He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.

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