What Is an IVA Agreement?

What is an IVA?

IVA stands for ‘individual voluntary arrangement’. An IVA is a formal agreement for people who owe money to their creditors. IVAs are very much like bankruptcy, but are less costly than declaring bankruptcy.

IVAs can be signed and finished quickly, and the bank will forgive some of your debt when you make regular payments. They cost less to finish than bankruptcies do.

An IVA (or Individual Voluntary Arrangement) is one of several options to settle debts. Unlike bankruptcy which wipes out your unsecured debts, an IVA offers a compromise solution for you to pay off your debt over a 60 month period.

IVAs are available only to individuals; businesses and firms can use a company voluntary arrangement (CVA). IVAs work on the principle that those who have assets will contribute towards paying off their creditors’ debts.

IVA Overview

IVAs were introduced in 1986 under the Insolvency Act 1986 as a way of getting people with serious money problems back on their feet. IVAs are suitable for most forms of unsecured debt, including credit cards, bank loans and hire purchase agreements as well as overdrafts.

An IVA is an informal agreement between a debtor (a person or company that owes money) and its creditors (people or companies that the individual or company owes money). IVA agreements refer to the “agreed amount” which will be paid off over an IVA term.

An IVA may only be used if there’s more than one creditor involved in the deal; if the debtor has no outstanding debts with more than one creditor, he or she won’t be able to use an IVA.

IVAs are designed for people who have too much debt and need financial relief. IVAs involve a court-approved arrangement between the debtor and his or her creditors which lets the debtor repay some of their debts over time, in instalments.

They can also include additional benefits like interest reductions on existing debts, penalty waivers, and even removal of debts entirely but this usually only happens when you make monthly payments under a Payment Plan for 12 months (at least), then those remaining debts will be removed from your Credit File completely.

IVAs are intended to help you get out of debt; if not all your creditors agree to let you do that through an IVA, they won’t be included in the IVA agreement and you’ll still owe those creditors money.

IVAs aren’t as formal as bankruptcy, but are more formal than reaching an informal debt settlement with your bank.

IVA v Bankruptcy

IVAs are very much like bankruptcy, but are less costly than declaring bankruptcy.

They are a good alternative for people who wish to avoid bankruptcy proceedings because it allows them:

Less negative impact on their credit record than a bankruptcy;
They retain assets they need (e.g. car).
Debt repayment will not affect their future employability.
IVAs may allow debtors to keep their home once they settle all arrears, whereas those using other methods would lose it.
They are flexible because they can be agreed with creditors individually as opposed to everyone at the same time under a bankruptcy.
They also allow debtors to keep their assets and IVA agreements sometimes last for only 12 months rather than the 3 or 5 year period often required in bankruptcy.
IVAs are less stressful on debtors because there is no court procedure, so it requires fewer visits to the courts;
They are cheaper – IVAs cost around £400 (including VAT) whereas bankruptcy costs over £1,000. However, IVAs do not cover all debts whereas bankruptcies almost always include credit cards and overdrafts.
IVAs do not affect home insurance premiums unlike bankruptcies which could see them rise.

What Do IVAs Cover?

IVAs cover most types of unsecured personal debt such as credit cards, bank loans and hire purchase agreements as well as overdrafts.

IVAs cannot be used for secured loans (for example, mortgages or car finance) or business debts, or to stop eviction proceedings.

The list of debts an IVA can cover is the following:

Personal loans
Credit Cards
Bank Loans
Council Tax arrears
Gas and Electric arrears
Income Tax
Tax Credit
Benefit Overpayments
Outstanding Bills

However an IVA can’t cover the following types of debt:

Child Support arrears
Student Loans
Social Fund Loans
Maintenance arrears order by a court

How Long Does an IVA Last?

An agreement with one or more creditors basically in which you commit to paying them back some part of what you owe over a period of time.

It gives you breathing space and time to get your life back on track while at the same time keeping creditors at bay so that they do not have further negative impact on your financial situation.

It can be for as little as 3 years, but must be for no less than 12 months. You want it long enough to be financially viable. But short enough to regularise your finances and get them back on track.

The minimum period is 12 months and the maximum period in the UK is 6 years.

You pay an agreed percentage of what you can afford each month to one or more creditors. In some cases this will be 100% and in other cases you may wish to pay a lesser percentage.

Confirmation from your creditors that they are happy with the proposed terms will form part of this initial agreement which creates a legally binding contract between you and any creditor prepared to accept these conditions.

Flexibility of an IVA

The IVA gives flexibility about how much money will go towards each creditor per month depending on how much you can pay.

IVA’s normally require you to make a single monthly payment towards your IVA with the remaining money going into a trust fund that will then be used to cover IVA creditors payments over time.

IVAs allow you to keep all your assets e.g – house, car, furniture and still arrange for IVA repayments.

IVAs are not just for mortgage holders who have to sell their house or car in order to get out of debt. They are also very suitable for those who want all of their assets kept intact so they can continue on as normal throughout the IVA period.

We Can Help With the Following Types of Debt

Benefit overpayments
HMRC debt
Council tax
Loans/overdrafts/credit cards
Utility/company bills
County Court Judgements
Catalogue and store cards
Rent/gas/electricity arrears
Payday loans

These solutions are designed for people struggling with their finances to take back control. At Consumer Debt Help, our mission is to get you out of debt.

Visit our website at www.consumerdebthelp.info and complete our quick survey to see if we can help you become debt free. Stop struggling and take that step, you owe it to yourself!

Feel free to read more of our blog posts!