0800 464 7235 How to apply for an IVA:
A step-by-step guide
Applying for an Individual Voluntary Arrangement (IVA) is a significant step towards managing your debt. If you’re considering an IVA, it’s essential to understand the process and ensure it’s the right choice for your financial situation.
Here’s a simplified guide to get you started:
Step 1 – Assess your situation
Before applying, ensure an IVA is suitable for you. It’s designed for residents of England, Wales, and Northern Ireland with a certain level of debt and who can commit to regular payments. Use our online debt write-off calculator above or consult with a reputable debt advice service to evaluate your options.
Step 2 – Find an Insolvency Practitioner (IP)
An IVA must be set up by a qualified IP. They’ll work with you to assess your financial situation, help draft your IVA proposal, and negotiate with your creditors. You can find a list of authorised IPs through official government websites or reputable debt advice services.
Step 3 – Prepare your proposal
With your IP’s help, gather necessary documents (proof of income, debt details, monthly budget) and draft a proposal that outlines how much you can afford to pay. Your proposal will include a repayment plan typically lasting 5 to 6 years.
Step 4 – Creditor approval
Your IP will present the proposal to your creditors. For the IVA to proceed, creditors representing 75% of your debt must agree. Once approved, the IVA becomes legally binding on all creditors, including those who did not agree.
Step 5 – Start your IVA
Upon approval, you’ll make monthly payments to your IP, who distributes the funds to your creditors. Following successful completion, remaining debt included in the IVA is written off, offering you a fresh financial start.
An IVA offers a structured path to debt relief, allowing you to make manageable payments and potentially write off a portion of your debt. It protects you from legal action by creditors and stops further interest and charges. However, it’s a formal, legally binding agreement that requires careful consideration and commitment.
This guide aims to provide you with a clear understanding of the IVA application process and help you decide if it’s the right debt solution for you.
What is an IVA?
An Individual Voluntary Arrangement (IVA) is a formal debt solution designed to help individuals in England, Wales, and Northern Ireland manage and repay their debts over a fixed period.
It’s a legally binding agreement between you and your creditors, allowing you to pay back a portion of your debts based on what you can afford. Typically, an IVA lasts for 5 to 6 years, during which you make monthly payments to an Insolvency Practitioner (IP), who then distributes these payments among your creditors.
Key Features of an IVA:
- Debt Repayment: You repay a portion of your debts in manageable monthly amounts, which are calculated based on your income and living expenses.
- Interest and Charges Freeze: Once your IVA is approved, interest and charges on your included debts are frozen, preventing your debt level from increasing.
- Legal Protection: An IVA protects you from legal action by creditors and stops direct contact from them, giving you peace of mind.
- Debt Write-off: Upon successful completion of your IVA, any remaining debt included in the arrangement is written off, offering you a fresh start.
Considerations:
- Credit Impact: Entering into an IVA affects your credit rating for 6 years, making it more challenging to obtain credit during and immediately after the arrangement.
- Commitment: An IVA requires a firm commitment to regular payments and can involve making adjustments to your budget to meet these obligations.
- Not for All Debts: Certain debts, such as student loans, court fines, and secured loans, cannot be included in an IVA.
Understanding what an IVA entails is crucial before considering it as a debt solution. It offers a pathway to debt relief for those struggling with significant debt levels, but it’s important to weigh its benefits against its implications on your financial situation and creditworthiness.
Related Read: What is an IVA?
Who is eligible to apply for an IVA?
An Individual Voluntary Arrangement (IVA) is a formal debt solution available to many residents in the UK, but understanding who qualifies is crucial before considering it as an option. IVAs are designed to help individuals manage and reduce their debt under a legally binding agreement with their creditors.
Here are the key criteria to determine if you might be eligible:
Basic eligibility criteria:
- Residency: You must be a resident of England, Wales, or Northern Ireland. Scotland has a similar solution called a Protected Trust Deed.
- Debt Level: You should have a minimum of £6,000 in unsecured debt. Unsecured debts include credit cards, personal loans, and overdrafts, but not mortgages or secured loans.
- Number of Creditors: You must owe money to at least two different creditors. This ensures that the IVA proposal is viable and can be distributed across multiple parties.
- Regular Income: Having a regular source of income is essential. It demonstrates that you can commit to making monthly payments towards your IVA.
- Disposable Income: After covering your essential living costs, you should have a minimum disposable income of £70 per month to contribute towards your debts.
Specific situations that may qualify:
- Individuals: Single persons with debts solely in their name can apply for an IVA to manage their unsecured debts.
- Couples: Married or cohabiting couples with joint debts may consider an IVA to address their combined financial obligations. It’s important to note that each individual may need to apply for their own IVA, even for joint debts.
- Self-Employed Individuals: Those who are self-employed and facing financial difficulties can apply for an IVA, offering a way to manage business-related unsecured debts while continuing their business operations.
- Homeowners and Renters: Both homeowners and renters are eligible for IVAs. Homeowners will need to consider how their property equity might affect their IVA, while renters will need to ensure their rental payments are considered in their living expenses.
Assessing your situation:
If you meet the above criteria, an IVA could be a suitable debt solution for you. However, it’s important to get professional advice to fully understand how an IVA works and its implications for your financial future. Debt advice services or an insolvency practitioner can provide personalised advice based on your specific circumstances.
Remember, an IVA is a formal agreement that affects your credit rating and requires commitment to a fixed payment plan. It should be considered carefully, with a clear understanding of both its benefits and responsibilities.
What debts can be included in an IVA?
An Individual Voluntary Arrangement (IVA) can include a wide range of unsecured debts. These typically consist of money owed that is not tied to any asset as collateral.
Here’s a straightforward list of the types of debts you can include in an IVA:
- Credit Cards: Debts from credit card usage.
- Personal Loans: Unsecured loans from banks or other financial institutions.
- Overdrafts: Current account overdrafts not secured against your property or assets.
- Utility Bill Arrears: Outstanding amounts on gas, electricity, or water bills, though you must continue to pay any ongoing charges.
- Council Tax Arrears: Past due council tax, with ongoing payments still required.
- Store Cards: Debts from store card usage.
- Catalogue Debts: Money owed to catalogue shopping accounts.
- Payday Loans: High-interest, short-term loans.
- Certain Tax Debts: Including some HM Revenue and Customs debts like income tax and National Insurance contributions.
- Mortgages and Other Secured Loans: Loans secured against your home or other assets.
- Student Loans: Government-backed student loans.
- Court Fines: Including criminal fines and other court-imposed penalties.
- Child Support Arrears: Money owed under a Child Support Agency or Child Maintenance Service arrangement.
- Hire Purchase Agreements: If the goods purchased are essential (e.g., a vehicle for work), you may be able to include the debt by transferring the ownership clause, but this is complex and not common.
Debts not typically included:
While IVAs cover a broad spectrum of unsecured debts, there are exceptions. The following are generally not included:
When considering an IVA, it’s crucial to compile a comprehensive list of your debts to determine which can be included. This step is vital in assessing whether an IVA is the right debt solution for you. It’s also important to note that while an IVA can include multiple types of unsecured debts, the decision to approve the inclusion of specific debts rests with your creditors. They will review your IVA proposal during the creditors’ meeting and decide which debts they’re willing to include under the terms of your IVA.
Remember, the goal of an IVA is to offer a manageable way to pay back what you can afford over a set period, typically 5 to 6 years. After successfully completing your IVA, any remaining debt included in the arrangement is written off. However, you must continue to make payments towards any debts not included in your IVA.
Given the complexities and the significant financial impact of an IVA, seeking advice from a debt advisor or an insolvency practitioner is highly recommended. They can provide personalised guidance based on your specific financial situation, helping you make an informed decision about pursuing an IVA and what debts can be included.
IVA Advantages
To allow you to make the best decision for yourself and your financial circumstances, here are some of the benefits of using an IVA to manage and repay unsecured debts.
Advantages
IVA Disadvantages
There are some downsides to using Individual Voluntary Arrangements, which you need to be aware of before deciding if an IVA is in your best interests. These disadvantages include:
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Check if you qualifyHow does an IVA affect your credit score?
An Individual Voluntary Arrangement (IVA) significantly affects your credit score because it is recorded on your credit report as a form of insolvency.
When you enter into an IVA, it will be marked on your credit file for six years from the date it starts. This mark can make it more challenging to obtain new credit, as lenders may view you as a higher-risk borrower.
Immediate impact:
Credit Score Decrease: Your credit score will likely decrease when the IVA is registered because lenders use credit scores to assess the risk of lending money. An IVA indicates financial difficulties, which can deter potential lenders.
Credit Access Limited: While the IVA is active and for some time after, obtaining new credit will be more difficult. Lenders who do consider your applications may charge higher interest rates.
Long-Term Impact:
Rebuilding Credit: After the IVA is completed, it’s possible to start rebuilding your credit score. The IVA will still be visible on your credit report for a year after completion if the IVA lasts for five years. You can begin to improve your credit by managing new credit responsibly, making all payments on time, and keeping balances low.
Future Financial Opportunities: Gradually, as you rebuild your credit, you’ll have better access to financial products. However, some lenders may ask if you’ve ever been insolvent, so an IVA could still influence financial opportunities even after it no longer appears on your credit report.
While an IVA can provide a pathway out of unmanageable debt, it does have a significant impact on your credit score and your ability to borrow in the future. This impact is temporary, however, and with careful financial management, it’s possible to rebuild your credit over time.
Related Read: How will an IVA affect my credit rating?
How to apply for an IVA
Applying for an Individual Voluntary Arrangement (IVA) might seem daunting, but breaking it down into steps can make it more manageable. Here’s a straightforward guide to get you started, with less formal language but keeping all the essential details.
Step 1: Chat with an Insolvency Practitioner (IP)
First things first, you’ll need to talk to an IP. They’re the pros who set up IVAs and will check if you’re a good fit for one. They’ll give you the lowdown on how IVAs work and what you need to do next. If they think an IVA could work for you, they’ll dive deeper into your finances.
Step 2: Share your financial details
Your IP will need some key info to work out an IVA plan that fits your budget. Make sure you’ve got the following details ready:
- How much money you make
- Your monthly spending (like food and housing costs)
- Any big assets you own (like your car or house)
- All the nitty-gritty on your debts
This info helps figure out how much you can afford to pay back each month, and if a one-off payment could be part of the plan.
Step 3: Possibly apply for a Court Order
If creditors are on your case, sending bailiffs or demanding payments, your IP can ask the court for a bit of breathing space with an Interim Order. This stops creditors from hassling you while you set up your IVA. It’s not always needed, but it’s there if things get too much.
Step 4: Putting together your IVA proposal
Now, your IP will get your IVA proposal ready. This is a plan that goes to the court and your creditors, showing them how you can pay back what you owe. It’ll outline:
- Your current money situation
- The IVA terms, like how long it’ll last and your monthly payment
- Why it’s a better deal for your creditors compared to bankruptcy
You and your IP will work out a payment amount that’s doable for you, without making your financial situation worse.
Step 5: Creditors consider your proposal
Once your proposal is ready, your IP will set up a meeting with your creditors. These days, it’s likely to be an online meeting rather than in-person. You can join in if you want to.
Your IP will present your plan, and then it’s voting time for the creditors.
Step 6: Making the decision
Each creditor gets a vote, but it’s not a simple headcount. Creditors you owe more money to have a bigger say. To get your IVA approved, you need 75% of them (by debt value, not by headcount) to say yes.
If they agree, all your creditors have to stick to the IVA terms, even the ones who weren’t keen on the idea.
Step 7: Keeping up with your IVA
Every year, you’ll have a check-in to see if your financial situation has changed. It’s a chance to adjust your payments if you can afford to pay more.
The key to a smooth IVA journey is making your payments on time, every time. If you’re struggling, get in touch with your IP right away. They’re there to help and can offer advice if things get tough.
Will creditors accept my IVA?
It’s important to remember that creditors are not obligated to approve your Individual Voluntary Arrangement (IVA). If your proposal is turned down, you’ll need to consider alternative debt solutions. Common alternatives include:
- Debt Management Plan (DMP): A more flexible arrangement to pay off debts over time without the legal binding of an IVA.
- Bankruptcy: A formal insolvency process that can clear most of your debts but has significant financial and personal implications.
During your initial consultation, whether in person or over the phone, your insolvency practitioner (IP) will evaluate your situation thoroughly. They aim to recommend an IVA only if they believe it has a good chance of acceptance by your creditors. This assessment is based on their expertise and understanding of what creditors typically accept.
Our insolvency service conducts a detailed review of your financial situation, considering all the information you provide. This thorough approach helps in crafting a proposal that’s more likely to be accepted.
If, however, your IVA proposal is not accepted, don’t worry. We’re here to guide you through your next steps. Our team can offer additional debt advice and support to find the best path forward for you to become debt-free.
Check if you qualifyCan you cancel an IVA?
Cancelling an IVA application is simple if it hasn’t yet been accepted; you just need to inform your IVA practitioner about your decision, and they can stop the process.
However, if your IVA has already been approved, cancelling it involves a more complicated procedure. You’re required to make a formal written request to your practitioner, who will then issue a Certificate of Termination.
It’s essential to thoroughly discuss your reasons for wanting to cancel with your practitioner. They can provide valuable advice and may suggest alternatives that could better serve your financial situation.
If you’re finding it difficult to keep up with payments or if you’re facing financial challenges, it’s possible to amend your IVA. This could involve temporary payment breaks or adjusting your monthly payments.
Often, making changes to your IVA is a more advantageous route than cancellation, as it allows you to maintain the progress you’ve made towards managing your debt while accommodating your current financial needs. Your practitioner is there to support you through these decisions, helping you to choose the best path forward for your financial well-being.
Frequently asked questions
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What happens after completing an IVA?
After successfully completing your IVA, any remaining unsecured debt included in the agreement is written off. You’ll receive a completion certificate from your insolvency practitioner, marking the end of your IVA. It’s important to check your credit report a few months after completion to ensure it reflects that your IVA has finished and to start rebuilding your credit score.
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How do I choose the right Insolvency Practitioner (IP) for my IVA?
Selecting the right IP is crucial. Look for someone who is fully licensed and has a strong track record of successfully managing IVAs. Recommendations from financial advisors or reviews from previous clients can be helpful. Ensure they are transparent about their fees and the services they provide. It’s also important that you feel comfortable communicating with them, as you’ll be working closely together.
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Can I make changes to my IVA after it starts?
Yes, IVAs are designed with some flexibility to accommodate changes in your financial situation. If you experience a significant change, such as a loss of income, you can request a review of your IVA terms. This might lead to a temporary payment break or an adjustment in your monthly payment amount. Any changes must be agreed upon by your creditors.
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Are there alternatives to an IVA?
Yes, several alternatives to an IVA exist, depending on your financial situation. These include Debt Management Plans (DMPs), which allow you to pay off your debts at a more manageable rate without entering into a formal insolvency procedure; Debt Relief Orders (DROs), suitable for those with a low level of debt and little to no disposable income; and Bankruptcy, a more drastic option that can clear most debts but has significant implications for your assets and credit rating.
