The ins and outs of an Individual Voluntary Arrangement

In today’s unpredictable employment climate, it is becoming easier and easier to find yourself in a real financial mess. I keep hearing people say that most working class families are only two pay days away from homelessness. The news is constantly full of stories about how food bank use is consistently rising, and more families are considered to be living in poverty. 

For us personally, we own our home and have a massive mortgage to pay out every month. Hubby and I are both self employed, so if we are off work sick, we don’t get paid. If we don’t get paid, the mortgage doesn’t get paid and other bills would follow closely behind. Knowing this has spiked an interest in finance for me – I like to know what options are out there for all situations which could arise…

Individual Voluntary Arrangements (IVA’s) aren’t a quick fix, but they will reduce the amount of financial stress you’re under, and reduce your monthly outgoings significantly. People take them out for all kinds of reasons – Perhaps you’ve fallen behind with credit cards, catalogues, utility bills, your rent or council tax? Maybe you’re self employed and your business has had problems? Maybe you split with your partner and suddenly found yourself having to pay all of the household the bills with only half of the income you had before?

What is an individual voluntary arrangement? 

Long story short: an Individual Voluntary Arrangement (IVA) is an agreement with your creditors to pay all or part of your debts over an agreed period of time. You will have to agree to pay a set amount of money back every month, over a fixed period of time – This is usually between 5 and 6 years. After this time, any remaining debt will be written off (If you have met every repayment). It is a popular method of debt management / consolidation for people who can afford to make smaller monthly repayments, so bankruptcy is avoidable.

An Individual Voluntary Arrangement could make your life easier in several ways: 

1). It will lower your monthly payments

2). All interest and charges will be frozen, so your outstanding balance won’t increase. 

3). Up to 80% of your debt could be written off (Depending on your circumstances).

It is worth mentioning that not everyone can get an IVA – You have to meet the qualifying criteriaAn IVA will stop your creditors taking further action against you for your debts, so you won’t need to dread the postman’s arrival once it’s set up.

If you opt for an IVA, you will be making regular payments to an insolvency practitioner, who will then divide this money between whoever you owe money to. You will go from making multiple payments each month to several different companies, to just making one (usually much smaller) payment to your Insolvency Practitioner. 

Your insolvency practitioner will work out what you can afford to repay, and how long the IVA will last. If you fail to keep up the agreed repayments, the agreement could be cancelled and you’d then be faced with courts, bailiffs, and possibly even bankruptcy again. 

If you do go down this route, you’ll have to give complete details about your financial situation to the Insolvency Practitioner. This includes full disclosure of your  income, assets, debts and what is owed and being repaid to creditors.Your insolvency practitioner will contact your creditors. The IVA will only start if the creditors holding 75% of your debts agree to it. It will apply to all of your creditors, though – even any who disagreed to it when the Insolvency Practitioner approached them. 

Your  insolvency practitioner would contact each company on your behalf to request the IVA, so it’s not something you have to request yourself if you do decide this is the option for you. I’d definitely recommend you do some thorough research before deciding which route you want to go down though. The IVA will show on your credit rating throughout the duration of the agreement, and for a year following it. During this time, you’ll probably find it extremely hard to get any form of credit, loan or mortgage. With that in mind, it’s not a decision to take lightly. 

I hope this post has been informative. 

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