The Individual Voluntary Arrangement (IVA) acts as a bridge between you and the people who owe money, regarding debt repayments. On the other hand, the IVA also restricts the demanding pace of the creditors, by ensuring certain strict actions and laws in your favour. But, there are also some consequences that always work.
Do you really think that you should avail of IVA? Is an IVA worth it? These questions always loom in your mind when you are having a lot of debts. Experts say that if you are having debts with zero security, then IVA is much necessary for you. So, let’s check out whether you should go for IVA, based on your current circumstances.
What is an iva and how does it work
An Individual Voluntary Arrangement (IVA) is an agreement with your creditors to pay all or part of your debts. You agree to make regular payments to an insolvency practitioner, who will divide this money between your creditors.
An IVA must be set up by a qualified person, called an insolvency practitioner. This will be a lawyer or an accountant. The insolvency practitioner will charge fees for the IVA. These can often be high and are based on the amount you pay back through the IVA. The insolvency practitioner deals with your creditors throughout the life of the IVA
You have to set up an IVA through an insolvency practitioner.
There might also be up-front charges to pay before your IVA has been set up. These can differ a lot between IVA providers. You’ll also pay a monthly payment to oversee the IVA.
There are also fees to pay to the insolvency practitioner, which are usually taken from your monthly payments.
It’s always best to get advice from a free debt advice service. They should also be able to recommend an IVA provider for you and help you understand the different fees and charges if you want to choose one yourself.
The First Look of IVA: Pros and Cons
To know whether the IVA is suitable for you not, you have to get a brief idea about its IVA pros and cons. Without further ado, let’s check them out:
- Affordable payments on a monthly basis
- The assistance of IP (Insolvency Partner)
- No demands from the creditors
- Zero interests and additional charges
- Prevents bankruptcy
- Equity assets might be at risk
- Transactions greater than 500 pounds with a credit card are unacceptable
- Selective debts are included in the IVA
- Hampers your credit score
- The appearance of your name in public Insolvency Register
The Costs of IVA
A well-trained and qualified IP is required for the IVA. Obviously, he/she will not work for free. On the other hand, the cost will depend upon the entire debt amount. The bigger debts will result in more intervention by a skilled IP. When the face-to-face agreement is done regarding the payment in instalments, the payment of IVA must be done on a monthly basis. On the other hand, you will feel relaxed about debt-repayments. So, is an IVA worth it? Yes, this is indeed a positive aspect.
Several Risk Factors
Assets with zero equity might be at risk on availing the IVA. If your house has its equity, then it has to be kept as a re-mortgage. The price regarding the re-mortgage is the additional profit that you receive from your home. If you cannot do that, then an additional 1 year is mandatory for the overall repayment of the debts. And, if you fail to pay that, then the sad news is, your house will be taken away.
IVA: The Considerable Factors
Understanding some considerable factors of the IVA will help you to decide — Is an IVA worth it? They are here as follows.
From the place where your daily earning arrives, it will pose a huge impact upon qualifying for the IVA. If the income is sustainable, then only you will be able to go for it, otherwise not. The amount of debt must cross more than 5000 pounds. In addition to that, if there is a presence of more than 2 lenders.
The Debt Quantity to be Written Off
Not all the debts fall in the category of IVA. There is a certain boundary regarding that. Your personal loans, bank overdraft, gas, water and electric bills, other loans can come under it. On the other hand, mortgages, support for the children will not come under the IVA. So, look before you leap.
The IVA generally lasts for 5 years. But, depending upon certain consequences, it will give you an extra 12 months period to clear off all the debts. If you have any other thought about the time-span, then a Debt Relief Order might be a suitable option for you.
The Restrictions you can Face
- Effect on the credit rating for the next 6 consecutive years
- A budget packed amount upon the terms and conditions
- On accidental skipping of any payment, the time span will extend
- Service details will be required for a successful IVA agreement
- Several restrictions on credit purchases
- On savings and earning bonuses
- Your name will be listed on IIR (Individual Insolvency Register)
Other options apart from IVA
Still thinking is an IVA worth it? There are also other facilities available if you are not interested in IVA. They are like applying for bankruptcy, getting a Debt Relief Order and building up a debt management plan. But, do you know when to do it?
You can only apply for bankruptcy when you don’t owe any assets. On the other hand, the application will also work if you are having a home that has less value compared to the debt. This category of assets has negative equity.
Get a DRO (Debt Relief Order)
Without having your own house and if the debts you owe is more than 20,000 pounds, then you can easily apply for a DRO.
Build up a DMP (Debt Management Plan)
The DMP will help you in staying relaxed by paying a small amount to the creditors. They cannot force you to pay their selective amount at any cost. The terms and conditions are there to protect you.
Is an IVA worth it?
Lastly, what is your point of view regarding IVA? Is it worthy or not worthy at all? Depending upon the entire circumstances based on your financial matters, it’s you who have to decide. Take the advice from several Step Change IVA debt advisor experts, consult with them and then take the ultimate decision.
Is an IVA worth it? Frequently Asked Questions (FAQs)
Individuals who seek a viable and effective debt solution in the UK often find an Individual Voluntary Arrangement (IVA) among other debt options. So, what is an IVA?
In layman's words, you can think of an IVA as a debt repayment plan that runs for a set tenure. It is a legal agreement wherein you consent to repay your creditors as much money as you can afford in regular contributions. You agree with the creditors to do so within a specified timeframe. As the IVA timeframe ends, the creditors agree to waive your outstanding debt money, if any.
Even though IVA is a legal contract between the debtors (you) and the one you owe money to (creditors), you rarely have to appear for court hearings.
Is an IVA worth it? Yes.
But is an IVA better than applying for bankruptcy? There is no definite answer to this. The preference for which debt solution to choose depends on the debtor's financial situation and personal reasonings. Whereas both are debt solutions, the insolvency procedures involved in an IVA and bankruptcy are different. The benefits of their similarities are dependent on the debtor's circumstances. Nonetheless, here are a few similar factors that would help you come to a decision.
In an Individual Voluntary Arrangement (IVA), you need to have a job, and you can keep doing your job. But in bankruptcy, you do not get the choice to have a professional career.
In an IVA, your property and other assets are taken into consideration. But if you do not own any assets, then bankruptcy could be your best option.
Your property, cars, and other assets receive legal protection in an IVA. But in bankruptcy, you would have to lose your assets.
There is no doubt there are IVA fees and costs involved in an IVA, but they are relatively lesser than the bankruptcy fees.
In an IVA, your record is included in an Insolvency register. But if you apply for bankruptcy, your insolvency will be listed in public magazines and newspapers.
In an IVA, you can repay your debts in monthly IVA contributions over some time. But in bankruptcy, you have to pay in one go and finish the ordeal as quickly as possible.
While those mentioned above are contradictory benefits of an IVA and bankruptcy, they also have similar factors. Such as:
An IVA and bankruptcy both are legal insolvency solutions.
Insolvency Register will list your IVA and bankruptcy debt solutions history.
They both affect your employment status.
Both IVA and bankruptcy have an impact on your credit ratings.
“Is an IVA worth it?” To know if an Individual Voluntary Arrangement (IVA) is worth the trouble for you, you should first determine whether you are eligible for an IVA or not. Here is an overview of the eligibility criteria to get into an IVA:
Users must be a resident of Northern Ireland, Wales, or England.
You should have more than one creditor to whom you owe money.
You have a regular income source to make monthly IVA repayments.
The total amount of unsecured debt you have should not be less than £6,000.
If you fulfill the qualifying points for an Individual Voluntary Arrangement (IVA), then maybe an IVA is worth it for you. To know more about IVA, you can contact the respective IVA administrators.
A standard period of an IVA is usually about four to six years. The duration of an IVA depends on the ability of the debtor to pay necessary monthly IVA contributions. If you can repay a slightly higher amount every month, the IVA duration will be shorter. You can also settle it in one go by paying a lump sum amount. But, if you can only produce small IVA contributions monthly, then your IVA duration will last longer than average.
Also, if you cannot pay the agreed debt amount within the set IVA tenure, then your IVA will be extended until the full agreed payment is made. This way, you can keep repaying in small affordable amounts. So, how do you think “Is an IVA worth it?”. The answer is yours to decide by properly weighing the possibilities and benefits.
Yes, an IVA duration is extendable under certain circumstances. If a change in your financial situation causes you not to make the required monthly IVA contributions, then assessing your case, the Supervisor or the Insolvency Practitioner can decide to extend the IVA term. Also, if you miss out on paying a few monthly IVA contributions, the missed payments will be added at the end of the IVA, resulting in its extended duration.
Even after giving your IVA application to the respective authority, you might still wonder. “Is an IVA worth it?”. Well, here are a few ways of knowing if your choice to enter into an IVA is worth it. Below are some reasons to find out if an IVA is your only option to deal with your considerate unsecured debts and creditors:
An IVA is worth it if you have many unsecured debts that you want to write off. When you have no other plausible option to pay off your debts in total over a specific timeframe, an IVA is a good choice at that point. It's because by choosing an IVA, you can successfully write off your outstanding debt amounts after passing a specific duration. Although there is no surety that the maximum debt amount can be written off, upon successful completion of the IVA duration, you can write off about 80.1% of the debt.
An IVA is worth it if you cannot repay in full to your creditors. You can pay your debts within a fixed timeframe by entering into an Individual Voluntary Arrangement (IVA). For the most demanding question of “what is an IVA”?. The answer would be that an IVA is an insolvency solution to your debt matters.
An IVA is worth it if you can make monthly IVA repayments. When you enter into an IVA, you have to make regular monthly payments to the creditors as long as the IVA lasts. The number of monthly repayments is decided during the IVA proposal stage and followed throughout the IVA duration. But, it also has a condition, providing that you have a reliable income source to make those regular IVA repayments. Pertaining to changes in your financial situation, there is a slight chance that your monthly IVA contributions might vary.
An IVA is worth it if you do not want to deal with your creditors directly. Yes, by entering into an Individual Voluntary Arrangement (IVA), you will be assigned a representative of yours, termed Insolvency Practitioner (IP). The IP will deal with the creditors and handle all your other financial affairs on your behalf. Since dealing with multiple creditors at once will be pretty stressful for you, the IP will deal with them in an IVA.
Another effect of an IVA is that the creditors cannot resort to any other means to distort the debt money from you after the IVA is in effect. That is until the IVA term is not over. But after IVA completion, the creditors have to write off any remaining debt of yours.
An IVA is worth it if you are okay with the effect of IVA for a long time, say around four to six years at most. You will repay most of your debts by the end of the IVA. Given the IVA solution and its benefits, it is safe to say that an IVA is worth every effort.
After learning about these reasonings, ask, “Is an IVA worth it”?. The most likely answer would be yes.
As stated earlier, an IVA is a legal contract. This means you can not do an IVA by yourself. As a legal debt solution, when you enter into an IVA, you are appointed a professional representative to deal with other IVA processes during its duration. That representative is the Insolvency Practitioner (IP), who will assist you and deal with multiple creditors for you. It is the responsibility of the IP and the IVA administrator to process, supervise, and monitor your monthly IVA contributions and if the IVA terms are followed.
So, to conclude, as much as an IVA is an excellent debt solution for UK residents, you cannot the matters of IVA into your hands. It would be handy to have an assisting partner.
Every IVA proposals are different. So, one cannot correctly determine the average monthly IVA contributions of a debtor. The IP will set your monthly IVA contributions based on your financial and personal situations if you enter an IVA. Factors taken into effect when calculating the monthly repayments are your income, priority debts, unsecured debts, living conditions, and monthly expenditures. Your monthly repayments to an IVA should be as high that you are left with shallow money on hand for your necessities. The repayment amount is set only after deducting your expenses and the money towards priority debts.