What Makes You Eligible For An IVA?

If you’re struggling with unsecured debt and failing to meet your current repayments, an IVA could be a good solution. Nevertheless, you will need to meet some essential criteria in order to qualify for an IVA:

• Having at least £80 in spare income each month to pay towards your debts
• Being able to prove a regular and consistent income
• Being insolvent. This means that the value of your debts is higher than the total value of your assets.
• Having at least two different creditors (companies to who you owe money)
• Your total debts accumulate to £5000 or more
• You live in England, Wales or Northern Ireland (if you live in Scotland, a trust deed could be a viable alternative option)

Types Of Debt That Can Be Covered In An IVA

Credit card debt

This typically includes money owed to credit card companies due to missed payments and the interest that has accumulated.

Payday loans

Payday loans are typically small, short-term loans with very high interest rates. Individuals will usually borrow money with the intention of paying it back on their next payday, but interest can accumulate incredibly quickly.

Store card debt

Store card debt is similar to credit card debt, except it is usually only spent at one store. You’ll usually be able to purchase items on a store card and then receive a monthly or quarterly bill. If, at this point, you fail to repay in full, interest will begin to be charged.

Overdrafts

Overdrafts let you borrow extra money through your current account. Some banks allow interest-free overdrafts up to a certain amount, whereas others could charge interest as soon as you go overdrawn.

How Long Does It Take To Set Up An IVA?

If you’ve decided that an individual voluntary arrangement (IVA) is the best-unsecured debt solution for your situation, it can be set up in around 4-6 weeks on average, although this will depend on a few factors (such as the majority of your creditors accepting the proposal).

If you’re looking for immediate debt relief and assistance, you can apply for ‘Breathing Time’ – a government debt respite scheme – which will give you 60 days of respite from interest, fees and creditor contact. This could be a useful solution whilst you are setting up an IVA, should you feel stressed about your current situation.

Your insolvency practitioner will use your financial information to create an IVA proposal, so the sooner you send over accurate documentation, the quicker the process will be. Once they have created this, they will contact your creditors and negotiate with them on your behalf. Once 75% of your creditors agree to the proposal, your IVA will be ready to go.

How Does An IVA Work For Homeowners?

If you own a home, the value of your property will be taken into account during the creation of your IVA. You’ll never be expected to sell your home to pay back your debts, but you could be asked to remortgage your property towards the final year of your IVA to release equity that will be used as a lump sum payment towards your debts.

During the penultimate year of your repayment plan, you’ll be required to get a valuation on your home. This is so that the amount of equity can be calculated – which is essentially the amount of money you would make if you sold the property after repaying any mortgage loans.

If this valuation indicates that there is £5000 or more equity in the property, you will be expected to remortgage the property and use this amount as a lump sum to go towards paying off your remaining debts. Alternatively, if the valuation is less than £5000, you won’t be expected to remortgage your property.

There is usually an upper limit on the amount you’ll be expected to contribute to your IVA after remortgaging your property, but this will be based on the value of your home and the size of your original mortgage. You will never be expected to sell your home or be made homeless as part of an IVA.

What’s The Impact Of An IVA On Your Credit Rating And Credit File?

Although seeking to establish an IVA is a positive step towards regaining control of your finances, the fact that you need a debt solution will still be reflected in your credit rating for the duration of your agreement and for a period of time afterwards.

Details of your IVA will be recorded on your credit report for six years, which is a publicly available record of your credit history that carries details of your financial situation (including the use of debt solutions). After six years since the beginning of the IVA, it will be removed.

As well as this, if you apply for an IVA, you will automatically be listed on the Individual Insolvency Register. This information will be available to creditors until three months after your IVA ends, which could make it difficult for you to obtain credit in this period.

If you’re worried about the long term impacts of an individual voluntary arrangement, call our team at IVA Helpline today on 0800 464 7235 for debt advice and assistance.