In this article, we look at many questions on IVAs we are asked.
In this article, we look at many questions we are asked by potential clients when it comes to IVAs as a debt solution for unsecured debts.
How to set up an IVA?
It is not possible to set up an Individual Voluntary Agreement with anyone other than a qualified IVA Firm with a qualified Insolvency Practitioner, and it cannot be done simply between a creditor and a debtor. Make sure the Insolvency firm is regulated by a firm such as The Insolvency Practitioners Association. To set up an IVA, you’ll have to hire an IVA firm that can prepare the agreement for you and ensure that you are suitable for it.
If you’re looking for someone to speak with about an IVA, reach out to an IVA company and/or an Insolvency Practitioner such as Become Debt Free. These are businesses composed of financial experts who will be able to assist you in understanding and establishing your terms with creditors..
Your Insolvency Practitioner will, after looking at your personal circumstances, draw up an IVA proposal for you to read and sign. This will then be sent to each creditor for the creditors vote.
What is the criteria for an IVA?
To begin, IVA payments should be at least £100 per month disposable income to offer your creditors as payment for unsecured debts. Chances are, a creditor will not agree to an Individual Voluntary Arrangement (IVA) if the person cannot pay a decent amount back–even if it’s lower than the original owed sum. However, by putting away £100 each month, you show that you have the means to start paying off what is owed without putting yourself in further debt.
However, IVAs can be flexible. The IVA company will analyze your finances to locate how much money you have left over each month for non-essentials. They will also help you find ways to increase your monthly income. To start an IVA, those looking must have a steady and predictable income stream. An individual whose earnings are inconsistent, or someone unemployed, may not qualify for an IVA.
IVAs can take a number of factors into account, including personal assets and pension payments for those who are over 55. If you’re a homeowner, you should be aware that many IVAs will demand that you have your house evaluated by a professional during the final year of your contract to introduce funds into the IVA for the benefit of creditors.
Unsecured creditors such as credit cards, bank loans, council tax arrears, payday loans and other unsecured loans etc can be added. Secured creditors such as mortgage payment(s), purchase agreements or other secured loans cannot be included.
It is worthwhile knowing an IVA will affect your credit file with credit reference agencies. Please remember this if you wish to enter into an IVA. You will also not be able to obtain any further credit for 6 years from when the IVA was approved. You will also be placed on the insolvency register.
On the plus side, an IVA also legally freezes all interest and charges on the debts and stops creditors from being able to contact you in any way. You can have a bank account as normal, but no overdraft. If you do have an overdraft, this would go into the IVA and you would need to open up a new bank account.
You are also eligible to have more than one payment break throughout the five year term.
Paying your way to an IVA
Always remember that you will need to pay for your IVA agreement. This is because the company who sets up your IVA will have staff who oversee its progress. Depending on certain conditions, an IVA cost is around £5,000 but they can also be as low as £2,000.
An Individual Voluntary Arrangement (IVA) is typically seen as a last resort; an attempt to show creditors the true financial position you’re in, but it isn’t cheap. Some Insolvency Practitioners will want their fee before they start setting up your IVA with your lenders, while others will take the fees as part of the payments you make.
You don’t pay your creditors directly with an IVA. Instead, you make a monthly payment into the IVA, which is then paid to your creditors. This way, your IVA company can take their fees from the money owed to them like other creditors. Always keep upto date with IVA payments.
Does an IVA mean bankruptcy?
No. An IVA is nothing like bankruptcy and could be seen as the better option if you’re debating between the two. Yes, both options are a type of insolvency, but that’s where the similarity ends. If you declare bankruptcy, all of your assets will be sold in order to pay off what you owe; unlike bankruptcy, an IVA provides leeway and time to get your finances in check so that you can start paying back debtors without selling everything you own.
Individuals who are having trouble repaying their bills may declare bankruptcy as a last resort. A creditor can request that you be declared bankrupt if you owe them a significant amount of money, rather than you requesting to be listed as bankrupt.
An IVA is for when you owe at least £7,200 to multiple creditors. while bankruptcy can be considered when you only owe them £750 – much lower. Bankruptcy will last only one year but stay noted on your credit history file for six more years. On the other hand, an IVA could last up to six years and stay noted on your credit history file for an extra year after the agreement has ended.
If you qualify for an IVA, it is frequently the best option. An IVA enables you to make monthly payments toward your debt and does not require the sale of your home or assets. Bankruptcy is much more severe and entails the selling of all feasible, non-critical assets (within reason) in order to pay off your debt.
If you don’t manage to pay back your debt at the end of an IVA, but have stayed current on repayments, your remaining debt is written off. Although both bankruptcy and IVAs are ways out of financial hardship when owing creditors a large amount of money, an IVA is superior because it’s much easier to handle.
If you’re struggling with debts, contact us to find out about a wide range of other debt solutions that help people deal with their debts and get on with living their life.
Pick up the phone and call for free debt advice on 0800 169 1536 to speak with one of our fully trained advisors for free advice. They will take the time to listen to you and learn about your debt, your life, and what you hope to achieve. Our team is empathetic to your situation and will work with you find a solution that meets YOUR unique needs–not anyone else’s.
Call us today on 0800 169 1536 for confidential, no-obligation debt advice. Or you can complete and submit our online Debt Help form and we’ll call you back.
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The government has an article on debt solutions here.
