An IVA is not a free debt solution. There is a cost. However you do not pay this directly. The fees are taken out of your agreed monthly payments.
- Is there an up front fee to start an IVA?
- What is the ongoing cost of the Arrangement
- Should you shop around to get the lowest fees?
- If the IVA fails what happens to fees paid?
Is there an Up front Fee to start an IVA?
You should not have to pay any up front fee to start an IVA. Reputable companies will not charge you anything to help you put the Arrangement in place.
Having said that there are rare occasions when a payment is required. If one of your creditors has already applied to make you bankrupt it would be necessary to suspend this action with an Interim Order. The cost of this is £165 which you have to pay up front.
If you owe money to HMRC it is possible that they will require you to pay a deposit in advance. This would then be used to make you bankrupt if you fail to pay your IVA once approved. However this demand is unusual.
If you apply for an IVA and the Arrangement is not accepted by your creditors or you change your mind and cancel your application you should not have to pay anything.
What is the Ongoing Cost of the Arrangement?
After your IVA is agreed it is managed on your behalf by an Insolvency Practitioner (IP). They are then allowed to charge various fees for the work they do.
The first is called a Nominee Fee. This is to cover the cost of making the agreement with your creditors. It will normally be between £1000-£1500.
In addition to the Nominee fee your IP will also charge Supervisor fees. These are taken each year that your IVA remains in place to cover the cost of managing it. They are usually equal to 15% of the amount paid into the Arrangement after initial fees and costs have been deducted.
You do not have to find any extra money to pay the Nominee or Supervisors fees. They are taken from the standard payments that you make into your IVA.
Should you shop around to get the lowest IVA fees?
You always need to make sure that you are comfortable with the IVA company and Insolvency Practitioner that you are working with. However you do not need to be worried that one IP will charge higher fees than another.
Since 2008 the vast majority of IVAs have been governed by strict standards limiting the amount of fees that they can charge. As a result all IPs charge very similar amounts. You do not have to shop around to get the best deal.
The most important thing to remember is that you do not have to pay any fees directly. They are always deducted from the payments you make other than in exceptional circumstances.
You always have to pay as much as you can afford into your IVA. The payment you make will be determined entirely by the level of your income and reasonable living expenses requirements.
If your IVA fails what happens to the fees paid?
If your IVA fails you are not liable to pay any outstanding IP fees. However the any payments that have already received will not be returned. This can be an issue if the failure happens within the first 12-18 mths.
In these circumstances and depending on the level of your monthly contributions is it possible that everything you have paid into the Arrangement will be taken in fees. As such the level of your debts will be the same.
For this reason it is important that you do not start an IVA unless you are confident that you will be able to maintain the payments.