What is an IVA?
IVA Explained
An IVA, or Individual Voluntary Arrangement, is a legally binding agreement between you and your creditors. It allows you to repay a portion of your debts over a set period, with the remaining balance being written off at the end of the agreement.
An IVA allows you to merge all eligible debts into a single monthly payment, making it easier to manage your finances. The process is handled by a licensed Insolvency Practitioner, who will communicate with your creditors on your behalf. Throughout the IVA, creditors are required to freeze any interest and charges.
Before the arrangement begins, your monthly payment amount will be determined, allowing both you and your creditors to decide whether to proceed.
You can also use our online IVA Calculator to estimate how much debt could be written off through an Individual Voluntary Arrangement.
Your financial situation, including your income, expenses, and total debt, will be assessed. Based on this, the proposal will outline how much you’ll need to repay, the amount that may be written off, and the expected end date of your IVA.
Most IVAs last around five years, and at the end of this period, you’ll be free from your remaining debts.
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What Debts Can Be Covered by an IVA?
Not all types of debt can be consolidated into an Individual Voluntary Arrangement (IVA), so it’s important to understand which debts can be included and which will need to be paid separately.
Debts typically covered by an IVA include:
- Credit Cards
- Payday Loans
- Overdrafts
- Utility Bill Arrears (e.g., Gas, Water, Electric)
- Council Tax Arrears
- Benefit Overpayments
- Tax Credits
- National Insurance Debts
- Personal Debts (e.g., money owed to family and friends)
- HMRC Debts
Debts That Cannot Be Included in an IVA
Secured debts cannot be included in an Individual Voluntary Arrangement (IVA), and it’s important to maintain regular payments on these to avoid accumulating additional debt.
Examples of debts that cannot be covered by an IVA include:
- Mortgages
- Student Loans
- TV License Arrears
- Court Fines
- Child Maintenance
- Unpaid VAT Bills
Advantages and Disadvantages of an IVA
Not every debt solution is suitable for everyone, so here are some aspects that make an Individual Voluntary Arrangement (IVA) a great option, along with some important considerations:
Advantages
- An IVA can eliminate a significant portion of your debt.
- You only repay what you can afford.
- The agreement is legally binding, requiring creditors to adhere to its terms, with interest and charges frozen.
- Creditors cannot contact you directly during the plan; your Insolvency Practitioner will handle communications on your behalf.
- You will receive a clear end date for the IVA.
- An IVA won’t cause you to lose your home as long as you continue to make regular mortgage payments.
Disadvantages
- If you receive a lump sum of money during your IVA, creditors may require you to use it to pay off your debts.
- You may be asked to release equity from your home; if this isn't feasible, your plan may be extended by 12 months.
- Your credit rating will be impacted for the duration of the IVA and for one year after its completion.
- Your name will be listed on the Insolvency Register, which is publicly accessible.
- If your IVA fails for any reason (e.g., not maintaining the agreed monthly payments), creditors can resume collection activities.
- You will need to adhere to an agreed budget for living expenses throughout your IVA.
- You must not take on additional credit exceeding £500 without the approval of your IVA Supervisor.
What will I have to pay?
Your monthly payment will be determined by your disposable income (the amount left after covering your regular living expenses) and will always remain affordable, even if your circumstances change.
This payment covers your debts as well as any fees associated with the IVA, ensuring there are no additional or hidden charges. All fees will be clearly explained to you before you sign anything, and they typically include:
- Nominee’s fee
- Supervisor’s fees
- Costs and expenses
For a more detailed breakdown of these fees, please refer to our section on IVA Costs and Fees.
IVA Compared to Other Debt Solutions
Several factors make an Individual Voluntary Arrangement (IVA) a great choice for addressing your financial difficulties.
Here’s a quick comparison with some other options you might encounter when seeking debt assistance:
Bankruptcy or IVA
While both bankruptcy and an Individual Voluntary Arrangement (IVA) can lead to the reduction of significant portions of your debt, there are key differences between the two options.
Here are a few examples:
- Bankruptcy may require you to sell your assets, including your home, to pay off your outstanding debt. In contrast, an IVA allows you to keep your home, provided you maintain your regular mortgage payments.
- Bankruptcy is a court order, whereas an IVA is a voluntary agreement between you and your creditors.
For more information to help you decide between an IVA and bankruptcy, please read further.
Debt Management Plan (DMP) or IVA
Both a Debt Management Plan (DMP) and an Individual Voluntary Arrangement (IVA) allow you to consolidate your eligible debts into a single payment. However, there are some important differences to note:
- A DMP is an informal arrangement, while an IVA is legally binding.
- With a DMP, creditors may still reach out to you regarding your debts. In contrast, with an IVA, creditors cannot contact you directly; your Insolvency Practitioner will manage all communications.
- An IVA is typically suitable for individuals with at least £6,000 in debt, whereas a DMP can assist those with lower debts of £1,500 or more.
For more useful information to consider when choosing between a DMP or IVA, please continue reading.
Different types of IVA
There isn’t just one type of Individual Voluntary Arrangement (IVA); several options are available based on your specific circumstances. Below are a couple of alternatives to help you understand what’s available:
Self-employed
You can still enter an IVA if you are self-employed. While you will make monthly payments based on what you can afford, the process works slightly differently:
Business Credit
You may need credit to sustain your business while on an IVA. This requirement can be negotiated in your initial proposal to your creditors, which should be agreed upon before the IVA begins. Creditors are generally unlikely to reject your request without valid reasons, but it’s essential to keep up with repayments for any business credit in a timely manner to prevent additional financial problems.
Varying Income
A self-employed IVA takes into account that businesses may experience seasonal or fluctuating income, allowing for some flexibility. You are required to provide accurate statements of your income and expenses, enabling your IVA payments to be adjusted as needed. It’s important to regularly submit this information to your Insolvency Practitioner, ensuring you only pay what you can afford and avoiding any issues with creditors.
Trade
An IVA can be arranged without including debts owed to specific suppliers if you plan to continue trading with them during the IVA. This can be negotiated during the initial proposal phase, allowing you to make separate payments to those suppliers and ensuring that your business operations remain unaffected.
Joint IVAs
Joint debts can be included in an IVA. However, it’s important to understand that if one person enters an IVA while the other does not, it will still affect both credit files.
If there is a qualifying amount of debt between two individuals, both can establish separate IVAs that include any joint debts. This is contingent upon creditors agreeing to the merging of debts and the terms of the IVAs. If approved, both IVAs can be consolidated into a single monthly payment.
Is an IVA Suitable for Me?
When considering any debt solution, it's crucial to ensure that you're making a well-informed decision about what’s best for you.
You must be committed to making your monthly payments on time and be transparent with your Insolvency Practitioner about any changes in your circumstances to avoid the risk of your IVA being voided.
No solution will eliminate your debts overnight, but if you stay with the IVA, you can expect to be debt-free in about six years, allowing you to rebuild your credit and move forward financially.
Are you finding it hard to manage your debt?
IVA Pros and Cons
When contemplating an IVA, it's crucial to weigh both the benefits and drawbacks before committing to this solution. Gaining a clear understanding of all aspects will empower you to make informed decisions with confidence.
IVA Costs and Fees
At RMS Financial, we offer free consultations to help you explore the debt solutions you may qualify for. If you decide to proceed with an IVA, be aware that there are fees involved. However, these fees are only applicable once your plan is approved and are incorporated into your monthly payment. You can find detailed information about these costs below.
IVA Pros and Cons
With RMS Financial, our consultations are free Whilst determining what solutions you might qualify for. As a debt solution. IVAS involve fees that are only applicable once your plan goes ahead. which are always included in your monthly payment. You can read all about them below.
IVA Pros and Cons
With RMS Financial, our consultations are free Whilst determining what solutions you might qualify for. As a debt solution. IVAS involve fees that are only applicable once your plan goes ahead. which are always included in your monthly payment. You can read all about them below.
IVA Pros and Cons
With RMS Financial, our consultations are free Whilst determining what solutions you might qualify for. As a debt solution. IVAS involve fees that are only applicable once your plan goes ahead. which are always included in your monthly payment. You can read all about them below.
Managing debt can be tough, so we’ve simplified it into three simple steps.
1
Consult with a debt expert.
Our knowledgeable and approachable team will walk you through the IVA process.
Discover your choices.
You won't feel rushed to make a decision. Our aim is to help you determine whether an IVA is the right fit for you.
2
Select your debt resolution option.
Choose the option that aligns best with your circumstances and lifestyle.
3
RMS Financial assists over 3,000 individuals in the UK each year.
Our team of specialists helps thousands of families regain control of their finances through an IVA.
Is an IVA the right choice for you?
We can evaluate your eligibility for an IVA.
Would you rather discuss this later?
We are here to provide support in helping you find a solution.
