An IVA (or Individual Voluntary Arrangement) is an option available for people with unsecured debts of over £15,000 that are struggling to afford the repayments and seriously not in a position to clear this debt for many years.
Over the past 2o years most people have got caught up in the “credit boom” and now have levels of unsecured debt which are simply unaffordable.
Clearing your debt in five years or less
Generally an IVA requires you to make 60 monthly payments into the arrangement and your creditors will get quarterly payments to reduce their debt. It is also possible to offer Full and Final Settlement IVA’s - if you are able to offer your creditors a lump sum settlement. (These are usually 6 to 12 month IVA’s)
As long as you stick to the plan and meet your monthly payments, the balance of the debt outstanding at the end of 5 years is written off. On average IVA’s allow debt forgiveness of around 65 to 67%.
Case Study
Mr Johnson was made redundant after 25 years of service in his employment. The payout didn’t last but unfortunately his ‘very good’ credit rating kept things afloat for too long, allowing credit card debts and associated interest to build up to a massive level
Supporting his wife, two children and trying to maintain his mortgage payments he managed to find a job which had little pay but enough to enable him to put a proposal to his creditors, to pay off a percentage of an agreed settlement figure for his debts over a five year period so he could offer at least a small contribution to hisCreditors
| Clients situation before IVA |
Approved IVA |
| Total unsecured Debt |
4 x monthly contributions @ £400
Followed by 20 contributions @ £200 |
£137,807 |
55% of our clients share of equity (his wife had joint share of the property and her share was excluded) |
| Surplus income after living costs |
Property worth £340,000
Mortgage Balance £261,500
Equity to be introduced £21,588 |
| £400 per month |
Total repayment by client |
| Approx monthly commitments to unsecured creditors |
£48,868 |
| £3,370 per month |
Divident to creditors |
| Shortfall |
29p |
| £2,790 per month |
|
Your supervisor does have some discretion to reduce your monthly payments if you hit a bad patch.
No more interest and charges.
After your IVA is approved all interest and charges on unsecured debt are frozen.
No further contact, threats or action from creditors
Again once your IVA is approved, your creditors are bound by the arrangement and cannot continue to chase you for their debt. However, if your IVA fails your creditors will be able to pursue you again for the debt.
Do I have to pay set up fees?
There are set up fees involved with an IVA but these are deducted from the money owed to your creditors and there will not be an additional fee added to your monthly repayment.
Setting up an IVA.
After you initially make contact with us we will discuss your current situation and decide if an IVA is the best solution for you. We would only advise a formal proposal if we think the IVA is likely to be accepted.
We will send you a questionnaire which will need to be completed and returned in order to gather all of the information needed for one of our advisors to prepare the IVA proposal. We will clearly explain the process and what information we need from you.
You will receive a letter to confirm that you have instructed us to contact your creditors on your behalf which must be signed and returned. Once we have your instruction we will communicate with your creditors and keep both you and them appraised of progress in getting your IVA approved.
One of our experienced advisors will produce a draft proposal using the information that you have provided us with. If we require any further information we may contact you to retrieve this. You will be sent a copy of this draft proposal for approval which will need to be returned to us.
When you have returned the draft proposal complete with any necessary alterations we will then update the proposal and return it to you for one final check and signature.
A report is then created on your offer to produce to the creditors. We will also lodge this report and IVA proposal in court. This is a formality and will not require your presence in court unless there are exceptional circumstances.
A creditors meeting will be arranged in order to discuss the IVA proposal. Generally there is no requirement for you to attend this meeting but you do need to be about as creditors may have queries which we need your help to answer.
The creditors will each vote as to whether they want to accept your proposal. If more than 75% of creditors who vote agree to the offer then your IVA will be accepted. This IVA is then legally binding to all creditors whether they voted or not.
It is possible for a meeting to be adjourned for up to 14 days in order for creditors to review any revised offers if applicable.
Debt write off applies only where an IVA is suitable, adhered to and at the end of 60 months and applies to unsecured debts included in the IVA. Alternative solutions may be offered. Failure to adhere to an IVA can result in bankruptcy. An IVA is a formal agreement and will affect your credit rating for up to 72 months after completion. Homeowners may be required to remortgage in the 4th year of the IVA. Fees apply and will be notified to you in advance.
If you own a property creditors will expect you to see if you can remortgage your property in year 5. If this is not possible and your share of equity in the property exceeds £5,000, you can extend your IVA up to a maximum of 12 months to make payments instead of remortgaging. Under no circumstances are you required to sell your property in a IVA.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER LOAN SECURED ON IT. THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. REPAYING DEBT OVER A LONGER PERIOD MAY INCREASE THE TOTAL AMOUNT TO BE PAID.
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