What is an IVA?

Adam

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If you’re struggling with debt and feel overwhelmed, an Individual Voluntary Arrangement (IVA) could offer a path to financial freedom. An IVA is a formal debt solution that allows you to pay back a portion of your debt over a set period (usually 5 years) while having the rest written off. Here’s everything you need to know about IVAs, including both the benefits and the potential drawbacks.

How Does an IVA Work?
An IVA is an agreement between you and your creditors to pay back what you can afford. You’ll work with an Insolvency Practitioner (IP) who will negotiate with your creditors and set up a payment plan based on your income and expenditure.

During the IVA, you make regular monthly payments that are agreed upon with your creditors. These payments are typically much lower than what you were paying before, and once the 5 years are up, any remaining unsecured debt is written off.

How Much Debt is Written Off in an IVA
One of the main advantages of an IVA is the significant amount of debt that can be written off. On average, around 70% of your debt could be written off by the end of the 5 years. For example, if you owed £20,000, your repayments could total around £6,000 over the 5-year period, with the remaining £14,000 being written off.

The exact amount of debt written off depends on individual circumstances. The amount you repay is based on what you can afford, and creditors agree to write off a portion of your debt in exchange for regular payments during the IVA term. This arrangement provides relief from accumulating interest and fees, meaning your debt will not continue to grow.

Am I Eligible for an IVA
An IVA is available to anyone with at least £6,000 in unsecured debt, such as credit cards, personal loans, or payday loans. To qualify, you must be able to make some level of repayment, even if it’s lower than what you’re currently paying.

A proposal is sent to your creditors, who will vote on whether to accept it. To be approved, at least 75% of voting creditors—based on the total debt value—must agree. If this happens, the remaining 25% are legally bound by the IVA, even if they voted against it.

What Happens if I Miss an IVA Payment?
Life happens, and sometimes things go off track. If you feel like you are going to miss an IVA payment, it’s important to contact your Practitioner immediately. They can help find a solution, like temporarily reducing your payment or putting you on a payment holiday, or even extending the IVA if necessary. The key is to communicate with your IP, so they can help you stay on track without jeopardizing your IVA.

Why an IVA Could Be the Right Choice for You
An IVA offers a number of benefits, including:

Debt Relief: A significant portion of your debt could be written off, depending on your circumstances.
Protection from Creditors: You won’t have to deal with creditor harassment or legal action.
Affordability: Payments are based on what you can afford, making them manageable.
Structured Plan: A clear timeline - with a set end date - offers peace of mind.

Try our solution finder to determine whether an IVA might benefit you, and what monthly payment you could expect to pay if eligible.

If you’re finding it challenging to manage your debts, an IVA might be the solution you need. Our friendly advisors are here to discuss your options and help determine if an IVA aligns with your financial situation.