Five Possible Solutions for Tackling Crippling Debt – Part Three – Individual Voluntary Agreements

This series covers five possible solutions for tackling crippling debt. Part one looked at Debt Management Plans. while part two explored Administration OrdersIn this post, I’ll explain Individual Voluntary Agreements.

I’ll explain what they are and for whom they’re suitable. You’ll find out what you’d need to do to apply for one, and what having one may mean for you.

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If you want a quick video explanation of Individual Voluntary Arrangements, watch this video by StepChange.

What Is an Individual Voluntary Arrangement?

An Individual Voluntary Arrangement (IVA) is a form of insolvency. Due to this, it’s essential to get advice from an impartial professional beforehand. You can find resources at the end of the article.

An IVA is a legally binding agreement between you and your creditors (those you owe money to). You agree to make a complete or partial repayment of your debts via regular, affordable payments to a qualified Insolvency Practitioner (IP).

You pay 60 or 72 payments over five or six years. The IP divides the money among your creditors.

During this time, your debts get frozen. As long as you stick to the agreement, your creditors can’t contact you or take further action against you.

At your final payment, any outstanding debt gets cancelled. You’ll receive a ‘certificate of completion’.

Individual Voluntary Arrangements are only available to residents of England, Wales or Northern Ireland.

IVAs aren’t available in Scotland, but Scottish residents can consider Protected Trust Deeds. Although a similar alternative to an Individual Voluntary Agreement,  a Protected Trust Deed has its own pros and cons; and different fees. You can read more about Protected Trust Deeds here.

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How Do I Get an Individual Voluntary Arrangement?

An IVA can only get set up by an Insolvency Practitioner. You must prove to them that you have a regular and ongoing income and give them financial details such as your debts, your creditors, and any assets you have.

Your Insolvency Practitioner sees what debt payments you can afford to make and will help you compile a proposal. They then give the proposal to your creditors.

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What Happens Next?

The Insolvency Practitioner will contact your creditors with your proposal.

Your creditors may ask you to alter the proposal before they’ll make an agreement with you. If this happens, the meeting adjourns for 14 days, giving you time to decide. If you agree to the changes, the IVA will start on the date of the next meeting of creditors.

You can’t force your creditors to agree to the IVA. However, if the creditors that hold 75% of your debt agree with the plan, the IVA will go ahead. The IVA will apply to each included creditor even if they didn’t agree to the proposal.

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Which Debts Can I Include in an IVA?

  • Catalogue debts
  • Council tax arrears
  • Credit card debts
  • Debts owed to family and friends
  • Gas and electricity arrears
  • Money owed to HM Revenue & Customs such as Income tax and National Insurance arrears
  • Overdrafts
  • Payday loans
  • Personal loans
  • Store card debts
  • Tax credit or benefit overpayments
  • Water bill arrears
  • Any other outstanding bill, such as legal bills and veterinary bills
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Which Debts Can’t I Include in an IVA?

  • Child maintenance or Child Support arrears
  • Court fines
  • Hire purchase agreements
  • Mortgages and secured loan arrears

Although you are allowed to include mortgage (and rent) arrears (and other secured loans against your property), your creditors must agree to it and they often won’t.

  • Rent arrears
  • Social fund loans
  • Some types of car finance
  • Student loans
  • TV Licence arrears
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Can I Set up a Joint IVA?

An IVA is an Individual Voluntary Arrangement, so can only be in one person’s name.

Things to Consider About Joint Debts:

  • Your individual IVA can include joint debts (debts that include both yours and another’s name).
  • Any joint debt included in your IVA will still need the other person to continue to make regular payments. If you have some of the debt written off, the other person must pay any outstanding debt.
  • Although a joint IVA isn’t possible, an Interlocking IVA might be suitable for you and any person you with whom you share debts.
  • An interlocking IVA involves you both having an IVA set up at the same time, with any joint debts listed in your individual proposals.
  • Between you, you make regular joint payments. When your IVAs have ended, any joint debts get cancelled.

To read more about interlocking Individual Voluntary Agreements, click here.

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Does It Cost to Set up an Individual Voluntary Arrangement?

No matter who you set up your IVA with, you will need to cover fees. How much these are and when they’re payable depends on who you use.

These Fees Are:

  • a nominee fee, for setting up the IVA.
  • a supervisor fee, to cover the on-going administration costs of the IVA.
  • disbursement fees, which cover expenses paid to third parties during your IVA. These cover such things as the cost of insurance to protect money paid to your IVA and for the registration of your IVA with the Insolvency Service.

Depending on who sets up your IVA, you may not have to pay any fees in advance, but instead, have them deducted from your monthly debt payments.

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Can I Cancel an Individual Voluntary Arrangement?

An Individual Voluntary Arrangement is legally binding. Once made, neither you nor your creditors can cancel the agreement. Get professional advice to check that an IVA is right for you.

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What Happens If I Don’t Keep up with My IVA Payments?

If you don’t keep to your repayment schedule:

  • your Insolvency Practitioner may cancel the IVA and make you bankrupt.
  • your creditors might backdate any frozen interest on your debts.

If you find yourself in altered circumstances that make it difficult to make your repayments, you can ask your creditors to review the terms you’d agreed to in the original proposal.

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What Are Lump Sum IVAs?

Lump sum Individual Voluntary Arrangements may be a choice for those who have a lump sum of money to pay towards their debt. This may be money from:

  • a friend
  • an employer
  • a relative
  • the sale of a property
  • an insurance claim
  • a redundancy settlement

An available lump sum of money might enable you to agree to a much shorter IVA. (A typical lump sum IVA lasts for six months, but this depends on individual situations).

You may either be able to pay one ‘full and final’ settlement amount or part lump sum with several payments thereafter.

The lump sum IVA carries the same risks and benefits as a regular payment IVA.

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Will I Have to Sell My Home?

As long as you keep up mortgage payments and any other loans secured on the property, you won’t be forced to sell your home. However, if there’s any equity in the property, you may be requested to re-mortgage six months before your IVA is due to finish. If re-mortgaging isn’t possible, you’ll get asked to make a further 12 payments.

Monies received from a third party may be used to make a lump sum payment equal to the value of any equity in the property.

Re-mortgaging may mean a higher interest rate.

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Will I Have to Sell My Vehicle?

As long as your vehicle make and model is a reasonable price, you should be able to keep any car or motorcycle, etc, when setting up an IVA.

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Will an IVA Affect my Job?

Although unlikely, it’s possible that having an IVA could affect your job. It’s more likely for those in senior roles, such as:

  • Company directors.
  • People in certain professions, such as accountants.

If this concerns you, it’s best to check with any professional membership body, HR department or union.

Other Considerations Before Applying for an Individual Voluntary Arrangement

  • Your IVA gets recorded on the public Individual Insolvency Register. It’s removed three months after the IVA ends.
  • Your IVA will show on your credit file for six years after the date the IVA begins.

While your IVA remains in either of these two places, getting credit may be difficult.

  • Throughout the duration of your IVA, you’ll undergo yearly reviews. If your finances improve, you may get asked to increase your monthly payment.
  • At your last payment, any remaining debt included in the IVA gets cancelled.
  • Only the debts included in your IVA will get written off at the end of the agreement. You must repay any other debts you have.

For more information on IVAs, check out this webpage by Citizens Advice and this handy PDF by StepChange.

 

Please remember that the information on my blog doesn’t constitute advice. Important financial decisions should follow a consultation with a dedicated professional.

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If you find yourself overwhelmed with money worries, please seek help from any of the following organisations:

Debt Advice Resources:

The Money Charity

National Debtline

The Money Advice Service

Citizens Advice

StepChange

I love hearing from you and want to grow this community. Don’t be shy! Comment, contribute to the Facebook page, send me a private message or all three! I will always try to help you.

Lisa aka ‘Bunchy’

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