How does an IVA work and is it right for me?

Firstly, what is an IVA?

An Individual Voluntary Agreement is a formal and legally binding agreement between you and your creditors. It gives both parties certain legal protection whilst you solve your debt problems.

To propose an IVA to your creditors you'll need the services of a licensed Insolvency Practitioner like Promise Debt Solutions. If 75% of your creditors (by value of debt) who vote agree, then the IVA is legally binding on all creditors.

An IVA can be for just one person, a "single IVA", or a "joint IVA" for those whose debts are held jointly (for example, husband and wife).

Proposals can be based on regular monthly payments or a lump sum offer. Regular payment IVA's normally last for between three and five years.

Is an IVA right for me?

There are five basic criteria:

  • You must have three or more creditors
  • With more than £15,000 of unsecured debt
  • You must be struggling with payments
  • You must be able to provide proof that you are employed
  • You must be resident in England or Wales or be able to prove that you have resided in England or Wales at some time during the previous three years.

    If you reside in Scotland , you need to consider a Trust Deed which is very similar to an IVA. Click here to view information about Trust Deeds.


How does the IVA work?

If you meet the criteria (see above) you have the option of proposing an IVA to your creditors as a means of clearing your debt and avoiding Bankruptcy. All IVA's have to be organised and administered by a licensed Insolvency Practitioner like Promise Debt Solutions.

To propose an IVA you must first complete an IVA questionnaire. Promise Debt Solutions's Debt Advisor will certainly help you with this. Then the Advisor draws up the IVA payment proposal which they present to your creditors. This proposal must involve you repaying at least 25% of your debts plus the costs of you IVA. So long as 75% of your creditors by value, agree, the legal papers can be organised and signed, and the IVA can start.

An IVA will generally lasts for 5 years, during which time, monthly repayments are made to the creditors through the Insolvency Practitioner.

At the end of the IVA, the balance of any debt that has not been repaid must then be written off by the creditors, leaving the debtor debt free. Because the IVA is a binding legal agreement, the creditors are unable to accept payments and then change their mind and ask for more money. The debt has been legally settled.

However, if you fail to keep to the terms of the IVA, bankruptcy proceedings will usually be initiated.

Lump sum IVA's

When the circumstances are right, it's possible to propose an IVA that consists of just one payment. This type of IVA is referred to as a 'Full and Final Settlement' or 'Lump Sum IVA'.

The circumstances that tend to favour a "Lump Sum IVA" are quite specific and will not be suitable for everyone:

  • You must qualify for an IVA under the normal criteria (see above).
  • You must have very little, if any, disposable income which would allow you to make monthly payments.
  • You need realisable assets, such as property, or have a third party who is prepared to act as a benefactor.
  • The capital sum available must be at least 25% of the total debts, plus sufficient left over to cover the costs of the IVA.

When these conditions apply, a Lump Sum IVA becomes a distinct possibility.

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Warning.
Think carefully before securing other debts against your home. All loans are subject to status. By taking out a consolidation loan, the repayment period is usually extended to reduce the monthly repayments and that can increase the total cost of the loan.

Your ability to obtain credit will be affected in the short term and might be affected in the medium to long term. Fees are payable.

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