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IVA (Individual Voluntary Agreement)


When debts spiral out of control, many people think bankruptcy is their only option – however, an Individual Voluntary Arrangement (IVA) allows you to make affordable repayments over five years. During this time, creditors should not chase you for payment, the interest is frozen and, importantly, you do not have to hand over your home or other assets. Unlike with bankruptcy, your bank account is not frozen.


Creditors must agree to include at least 75 per cent of the debt in the agreement, but it’s reassuring to know an IVA is legally-binding, so you know exactly what the repayments will be each month. Any debt remaining by the end is simply written off. Residents of England, Wales and Northern Ireland can apply for an IVA but there is also a Scottish equivalent, a Protected Trust Deed.


To qualify, you will normally have unsecured debts of more than £6,000, including credit cards, loans and overdrafts, as well as council tax, benefit overpayments and water, gas and electricity arrears. The agreement does not cover debts secured against a house (mortgage) or other assets (car finance), or court fines, student loans and child maintenance repayments.


Can I manage my own IVA?


The short answer is no. An Insolvency Practitioner (IP) is appointed to manage your IVA and will deal with the creditors for you. He or she then makes a proposal, based on what you can afford, which the creditors can choose to accept or reject. As long as they vote to include the minimum 75 per cent of debt, the agreement is legally-binding. You won’t pay a penny more than the amount set out in the IVA, although it will be reviewed every year, with payments adjusted according to your circumstances.


What if I can’t keep up with the repayments?


Always ensure you have enough in the bank to meet the monthly repayments, and get in touch with your IP as soon as possible if you’re struggling. The IP will tell you about outstanding payments, and also inform your creditors. Miss three payments and you’re breaking the terms of the IVA, so could face court action and be made bankrupt. Don’t wait until this happens because there are options to provide breathing room.

How much does it cost?


Any initial consultations should be free-of-charge, so avoid organisations that demand an upfront fee. The amount you pay each month depends on your earnings and outgoings, and should never be more than you can afford.


An IP receives a fee for managing the IVA though it is included in the monthly repayments. Bear in mind that the fee is outweighed by the fact that you’ll no longer be paying high interest on the debts and a large proportion of what you owe is likely to be written off. But once again, steer clear of organisations charging a further set-up fee.


Will it damage my credit rating and career?


An IVA appears on the Insolvency Register, as well as your credit file for six years. This can damage your credit score, making borrowing money difficult and costly. Once you are finally debt-free and in control of your finances, you can repair your credit score.


Unlike bankruptcy, someone with an IVA can still run a business, whether they are a sole trader or own a limited company. Don’t worry if you are employed – many people continue to work during the agreement, not least because it provides an income to pay off the debts. Some professionals, including those working in financial services, may not be able to continue, but always check your contract and have an honest conversation with your employer.