There is no fixed amount of debt needed before you can start an IVA. The level can vary depending on your circumstances.
- The minimum debt needed for an IVA
- What if you owe less than the minimum requirement?
- Is there any maximum amount of debt?
The Minimum Amount of Debt needed to start an IVA
Legally speaking there is no minimum or maximum level of debt required before you can start an IVA. It is an option you can consider whether you owe just a few thousand pounds or hundreds of thousands.
Having said that the Arrangement is usually unsuitable if you owe less than £6,000. The reason for this is that over the 5-6 years it lasts you will be required to pay an average of at least £100 per month.
This means that you will pay at least £6000 into the Arrangement overall. If your total debt is less there is little financial incentive to use this solution in the first place. Your creditors will normally reject the proposal and prefer you to repay what you owe directly to them in full.
Only unsecured debt can be included in an IVA. You cannot include secured debts such as a mortgage to increase the amount that you owe.
What if you owe less than the Minimum Debt Level required?
If your unsecured debts total less than £6,000 it is unlikely that you will be able to start an IVA. It would only be possible if the amount you can pay into the arrangement is less than £100/mth and you can find an IVA company who will help you at this level.
There are some IVA companies who might be prepared to work with you in these circumstances. For example if you can pay £80/mth this would total £4,800 over 5 years.
Your creditors may then agree to the Arrangement if your total debt is between £5000-£6000. However it is extremely unlikely you will be able to get an IVA if you owe less than £5000.
If your unsecured debts are less than £6000 you might be able to start an IVA in some circumstances. However it is normally better to consider an alternative solution.
Is there any Maximum Amount of Debt suitable for an IVA?
An IVA can be used however large your unsecured debt. There is no maximum limit. Given this the amount you are able to repay during the agreement can and often is relatively small compared to what you owe.
For example if you owe £40,000 but are only able to pay £150/mth you may only repay £9000 or 23% of your total debt throughout the Arrangement. The unpaid debt is then written off.
As long as what you can afford to repay gives a better return than your creditors would expect to get if you went Bankrupt the agreement will normally be acceptable.
Using an IVA will often mean that you repay your creditors far less than they are owed. However they accept this as they would expect to get even less if you went bankrupt.