IVA – The Ultimate Guide

IVA – The Ultimate Guide

Thinking about starting an IVA or already in one? This guide explains everything you need to know about how this debt solution works and what you can expect.

Included in this article:

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What is an IVA?

An IVA (Individual Voluntary Arrangement) allows you to reduce all your unsecured debt repayments down into a single affordable monthly amount.

You keep paying into the Arrangement for 5-6 years (unless you settle early). Any debt that you still owe at the end is written off. You can then continue with your life, debt free.

You get legal protection from your creditors. This means they can’t take further action against you to collect what you owe such as applying got a CCJ or attachment or earnings. If you already have one of these, it will be overturned.

You may be a home owner. If so, your property also gets legal protection. This means your creditors are no longer able to secure their debt against your home with a charge.

In addition, all interest and late payment charges being added to your debts are stopped.

An IVA is only available to people living in England or Wales or who have moved abroad in the last 3 years.

How much of your debt is written off?

You might have heard that you can write off 75% of your debt in an IVA. This is sometimes true, but it is by no means guaranteed.

It is true that you are likely to write off some of your debt. However, using this debt solution does not guarantee a fixed amount or percentage.

In fact, the amount you will actually write off depends on what you pay into the agreement each month. Two people who the same amount could end up writing off different amounts.

For example if you owe £32,000 and pay £300/mth, over a 6 year IVA you might pay back 72 x £300 = £21,600. £10,400 (or 33% of your debt) would remain and be written off. But if you only pay £250, you will only pay back £18,000 so 44% will be written off.

The amount written off can also change after the Arrangement has started. This could happy if your monthly payments increase. There is more information below about how your monthly payments can go up during an IVA.

Struggling to get your head round all of this? We can help. Call us (0800 011 4712) or complete the form at the bottom of this page. The advice is free and confidential.

What will your monthly IVA payments be?

Generally speaking you will need to be able to pay a minimum of £100/month into your IVA. However, you will have to pay more than this if you can afford it.

The amount you will pay is based on your surplus income (also known as disposable income). You work out your disposable income by taking away all your monthly living expenses from your monthly income. Your surplus is the amount left over.

You will have to pay all of your surplus income (100%) into your IVA. You can’t hold any of it back. For this reason, it’s really important that you get your figures right. If your expenses are too low, you will end up with a monthly payment you can’t afford and you will continue to struggle.

The amounts you include in your living expenses budget must be reasonable. If they are not, your creditors are unlikely to agree your IVA.

You may speak to an IVA company who say you can start off with a payment as low as £85/month. However, you can be sure that they will try to push you to increase this later on.

How long will your IVA last?

A standard monthly payment IVA lasts for 5 years. However, it is becoming more and more common for creditors to demand payments for an additional 12 months extending the agreement to 6 years.

However, once your Arrangement has started there are a number of reasons why you might have to pay for longer than you originally thought.

Payment Break

If you have a temporary financial emergency meaning you can’t pay your IVA, you can ask for a payment break. This allows you to suspend your payments for an agreed number of months.

Once the emergency is over, you restart your payments. You will have to add the months you missed at the end therefore extending the length of your IVA.

You must not take a payment break without first agreeing it with your IVA company. If you simply stop paying without their agreement, it could cause your whole Arrangement to fail.

Reduction of monthly payments

If your income falls or your living expenses go up, it might be possible to reduce your monthly payments.

You must agree any such reduction your IVA company. Where a reduction is possible, you will have to increase the number of payments you make to compensate your creditors. Generally they will be extend your agreement by an extra 1-2 years.

Unable to release equity from your property

If you are a home owner with equity in your property, you will have to agree to an equity release clause.

This means you have to try and release equity from your property in the 5th year of the agreement to increase the amount you pay into your IVA.

Where you are unable to release equity for any reason, you will have to make an extra 12 months of payments.

It might be possible to settle your IVA early by paying a cash lump sum. In these circumstances, you could complete the Arrangement in less than 5 years.

Can your IVA payment amount go up?

Your IVA payment is not fixed. This means it can (and often will) go up during the course of the agreement.

The main reasons for this to happen are if you get a pay rise or earn extra overtime.

You have to inform your IVA company as soon as you get a pay rise. They will then do a review of your income and expenses budget. Your payment will increase by 50% of any increase in your surplus income. So if your surplus goes up by £100/mth, your IVA payment will increase by £50.

If you do overtime, you can earn up to 10% of your normal take home income in any particular month and keep it all. However you must pay 50% of anything extra you earn into your IVA.

Your payments could also increase if your living expenses go down. For example if your child care costs reduce or you finish paying for a car HP.

If your payments increase, your IVA will not be paid off sooner. You will still have the same number of payments remaining. It simply means the amount you pay in total will go up.

What to start an IVA or need advice about your current Arrangement? Give us a call (0800 011 4712) or complete the form at the bottom of this page. Our advice is free and confidential.

What if you have a car on finance?

In most cases, you will not included you car finance debt in your IVA. You will continue making the payments and keep your car.

You must include the finance payment in your living expenses budget. As a result, you should always have sufficient money available to maintain the payment.

Where you have an HP agreement, the car is yours once you have finished paying for it. You will then have to add the money you were giving the finance company to your IVA payment.

If your vehicle is on a lease, you will normally return it to the finance company at the end of the agreement. You will then need to get finance on a new car.

It should state in your IVA proposal that the money you are paying for the lease will be used for this purpose and will not be available to increase your IVA payments.

Getting a new car on finance during an IVA is possible. However, you will need to use a specialist lender and get permission from your IVA company.

What happens to your credit rating?

A record of your IVA is recorded on your credit file. This negatively affects your credit rating and means you will find it difficult to get new forms of credit.

Your utility and mobile phone agreements will not be affected. However, you may have difficulty if you try to take out a new mobile contract during your IVA. This is because you are likely to fail the providers credit check which might cause them to refuse your application.

It will be possible to get some forms of credit. One example of this is a new car finance agreement. However, you will have to use a specialist sub prime lender. In addition, your IVA company will usually have to give written confirmation that they agree to you taking the finance before it goes ahead

Your credit rating will not get fully back to normal until the record comes off your file. This will be 6 years from the start date of your IVA  regardless of how long it lasts. If you settle early, the record does not come of your credit file early. It remains for the full 6 years.

Once the record of your IVA has come off your credit file, you will be able to get credit relatively easily again. You can even apply for a mortgage if you wish.

How to do get an IVA?

You can’t start an IVA yourself. If you want to get one or simply need more advice, give us a call (0800 011 4712) or complete the form at the bottom of this page. It’s free and confidential.

There are a number of things that have to happen to put the Arrangement in place.

First, we will need to complete your financial statement covering 4 main areas:

List of debts
List of assets

You will have to confirm the figures you provide with certain documents. Commonly things like copies of your last 3 months bank statements, wages slips and benefits statements.

Your IVA company will then produce an IVA proposal document on your behalf. After you have reviewed and signed the document, they send a copy to each of your creditors.

75% of the value of your creditors have to be in agreement with the proposal. If they agree, your IVA becomes legally binding on all of them.

It may be difficult to get an IVA if you only have one creditor or you have a significant creditor who is hostile to you and unlikely to agree.

What will you have to pay for an IVA?

You should not have to pay to start an IVA. There are no up front fees.

Once your Arrangement is in place, all you have to pay is your agreed monthly amount. You don’t have to pay extra to cover fees.

However, it is important to understand that your IVA company is not doing the job for free. They will deduct fees from the payments you make. These are called Nominee and Supervisor fees.

The Nominee fee is the amount that can be deducted for setting up the Arrangement with your creditors. It is normally between £1000-£1500.

Supervisor fees are the amounts deducted from your payments each year to pay for the ongoing management of your IVA. These normally equal around 15% of the money you pay in every 12 months.

Your IVA company will agree all the fees they plan to deduct up front with your creditors.

What to start an IVA or need advice about your current Arrangement? Give us a call or complete the form at the bottom of this page. Our advice is free and confidential.

2 thoughts on “IVA – The Ultimate Guide

    Cheryl A says:

    I’m currently in an iva. It has been extended from 60 months to 74 months. Can the Iva company still try and release equity from my house once 74 months of payment has been complete . I’ve paid 71 months

      Hi Cheryl

      It is difficult to comment on your specific case not knowing all the details of why your IVA was previously extended.

      Generally speaking, the issue of equity release will come up in the 54th month of your IVA. If you have equity in your property at that time but are unable to release any of it for whatever reason, then the requirement is ignored. However, your IVA payments would then be extended by 12 months in lieu of the fact that there is equity in your property which you can’t release.

      If your IVA was extended back in the 54th month due to not being able to release equity, then it can’t be extended again for this reason.

      You can read more about the IVA equity release which would have applied when you started your IVA here: Home equity release in an IVA

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