Insolvency is no laughing matter. It’s an issue that affects a large number of people at one point or another. And if it’s something you’re dealing with currently, it’s easy to feel like you have nowhere to turn.
However, that couldn’t be further from the truth. It’s important to know you have options when you’re working to get your financial situation back on track.
One of those options is an IVA.
An IVA can be a good bankruptcy alternative in some cases. An IVA, or Individual Voluntary Arrangement, can be just the thing you need to give you the fresh start you deserve.
But it’s important to know what an IVA entails and how it will affect you moving forward. Fortunately, that’s exactly what we’re going to cover today.
Consider this article your ultimate guide to IVAs. We’re going to cover what IVAs are, what you need to qualify, what debt an IVA covers, and much more.
So, read on, and let’s see if we can’t help you get your finances back on track.
What Is An IVA?
An IVA, or Individual Voluntary Arrangement, is a legal solution to help people pay off their debts and get a fresh start. The agreement occurs between you and your creditors. An Insolvency Practitioner (IP) usually helps walk you through the process.
Much like a bankruptcy, IVAs are a last resort to paying back the money you owe. It’s the duty of your IP to explore all possible options with you before suggesting an IVA.
The effects of an IVA will stay with you for several years. And, if it’s not the best fit for your situation, may even leave you worse off than before you started. Exploring all of your options and knowing what an IVA involves exactly are essential.
The IVA Process
Some paperwork needs to be filled out, and some steps need to happen, for you to move forward with your IVA. Your IP will be helping you through this process, but any information you have will help the process to run much more smoothly.
Let’s take a look at the steps necessary to file for an IVA.
The Interim Order is somewhat rare and only issued in rare circumstances. This is a document that your IP will file with the court. The purpose of the Interim Order is to stop any creditors from filing a claim against you.
Your creditors want to be paid back. They’ll do whatever they can to make that happen. The Interim Order prevents them from using court orders to do that. That way you and your IP can work on your IVA plan without constantly dealing with legal threats from your creditors.
Discuss Your Finances
Now it’s time for you and our team to put your heads together and make a game plan. This part of the process relies heavily on you, as well.
Together we will get together all of your financial paperwork. Compile a list of all of your debts, any assets you have, and any pay stubs or other proof of income. Together we will go through this to get a full picture of your current financial situation.
Once you have an idea of the full scope of your debts, assets, income, and expenses, we will go to work on your repayment plan.
Using all of the documents you’ve provided, we will come up with an appropriate repayment amount. This will be the monthly amount you pay to your creditors while going through your IVA.
It’s a good idea to offer to pay the maximum amount you can reasonably afford. Many IPs suggest this, as it’s the best way to ensure your IVA proposal gets accepted by your creditors.
Make A Proposal
Once you settle on your repayment amount, your IP will draft a proposal for your creditors to review. Your creditors won’t automatically accept an IVA. The process is similar to a negotiation.
The proposal your IP is working on at this point will be a rough draft of your IVA. From there, it’s up to your creditors to decide.
Once your IP finalises the proposal, they will call a meeting with your creditors.
During the meeting, your creditors will issue a vote of approval or rejection of your IVA. If the majority votes in favour of it, then you and your IP can move forward with your IVA.
Once your IVA is approved, all of your creditors have to abide by its terms.
How An IVA Works
Once your IVA is approved by your creditors, you’ll have to begin your repayments. Payments are usually made directly to your IP’s office. Your IP will then take this money and make sure it gets to your creditors.
The IP will pay their fees out of these payments, as well.
While you’re making your payments, and during the 5 to 6-year lifespan of your IVA, the IVA will show up on your credit file. During that time, it may be difficult to get a loan, or secure any other sort of credit.
The good news, however, is that the IVA will drop off your credit file shortly after you’ve made your final payment and received an IVA completion certificate.
An IVA, much like a bankruptcy, is legally binding. Because it’s legally binding, an IVA prevents creditors from continuing to hunt you down to pay your debts. No more phone calls, no more letters. Once your IVA process is underway creditors will no longer be allowed to contact you.
You’ll also only be required to pay back part of your debt, however you could write off up to 90% of unsecured debts with an IVA. This is part of the reason why your creditors need to be so involved in the process. They are essentially agreeing to forfeit a certain amount of the money owed.
Another great benefit of the IVA is that it’s limited to a certain amount of time. Most IVAs have a five or six-year structure. You’re only responsible for paying during that time.
Another benefit of using an IVA to your advantage is the amount of debt you can write off. IVAs are a great solution for a wide variety of debts. Personal loans, payday loans, credit cards, store cards, bank overdrafts, catalogue debts, and personal guarantees can all be covered under your IVA.
Being able to roll all of these different types of debt into your IVA has enabled some of our clients to drastically reduce their debt payments after going through the IVA process.
How Do I Qualify?
There are a few requirements you’ll have to meet to qualify for an IVA
An IVA might be the right fit if your debts add up to more than 7,000 pounds. You can still pursue an IVA if you have less in debt.
You also may want to consider an IVA if you owe money to two or more creditors, don’t want to deal with your creditors directly, and you have enough money to make IVA payments every month.
It’s not a problem if you don’t meet all of these criteria. IVAs are flexible. If you truly feel it’s the right option for you, talk to an IP or IVA firm. They’ll be able to look at your situation and see how they can help.
Disadvantages Of An IVA
While IVAs are a great tool for getting people back on their feet, there are still some downsides. But, if it’s the right choice for you, those downsides should be minimised. Let’s go over them here so you know what to look for.
Do you own a home? If you do, you’re going to want to pay attention to how an IVA affects your homeownership.
During an IVA, creditors will want to know a list of your assets. This is because they may ask you to sell some of them to raise more money for the IVA process. When it comes to your home, however, you won’t be forced to sell during an IVA.
Bankruptcy is different. If you have equity in your home during bankruptcy, they may ask you to sell. IVAs are different.
If you’re renting, however, an IVA shouldn’t affect your situation much at all.
Your Car and Possessions
Creditors have the right to ask you to sell your car under an IVA. But, if it’s a modest make and model of vehicle they typically don’t request that.
If you happen to come into extra money during your IVA process, you’ll have to pay some of that to your creditors. Typically, you’re allowed to keep the first 500 pounds. Anything after that will go toward paying down your debt.
During Your IVA
So, what does life look like during your IVA? Well, for starters, you’re responsible for your monthly payment. You need to pay it on time, every time over the next five or six years.
As a result, you’ll need to hone your budgeting skills. Fortunately, we’re here to help. The team at becomedebtfree.com can help you with budgeting. We also offer tons of resources online to help you through your IVA journey.
All IVAs should have an annual review process. At this point, if your expenses have gone up you have the opportunity to ask to pay less per month. If your income has gone up, however, you may be asked to pay more.
What If I Can’t Make My Payments?
The good thing about IVAs is that they are flexible. If you find yourself unable to make your payments, your IVA firm is going to have to review the terms of your IVA.
If your payments were low to begin with, there may not be enough wiggle room in your IVA to drop them even lower.
If by some unforeseen circumstances, you’re put in a position where your IVA is almost impossible to keep up with, you may have other options. You can look into getting a loan to pay off your IVA early. You can also see if you’re eligible to be switched to a DRO, or debt relief order.
Your Debt Demystified
Depending on your situation, an IVA may be the perfect solution for you to get back on your feet. It will keep your creditors at bay, leave you with only a portion of your debt to pay, and help you get a fresh start. But, it’s important to do your research to make sure it’s the right choice.
If you have any more questions about IVAs or debt management in general, contact us at any time. The team at becomedebtfree.com is always here to help.