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INDIVIDUAL VOLUNTARY ARRANGEMENT (IVA): WHAT YOU NEED TO KNOW
IVA stands for individual voluntary arrangement and is a form of insolvency. It is an arrangement between you and your creditors that consolidates your debts into one monthly affordable repayment, at the end of your IVA which is usually 5 years any debt which is remaining will automatically be written off. An IVA is a formal debt solution meaning it is legally binding, approved by the court and your creditors must abide by the agreement.
IVA’s were introduced by the Government in the 1986 Insolvency Act as an alternative to bankruptcy. They were meant to help people whose income or assets could cause them to be vulnerable to the bankruptcy process. For an IVA to be legally binding all your creditors, must vote to determine how many are prepared to accept your proposed arrangement.
If 75% of your creditors accept your proposal, then they will all become legally bound by the arrangement. Even creditors who voted to reject your proposal will be legally bound to its terms. Under the Terms and Conditions of an IVA, all creditors must forfeit their rights to chase you for the money owed or pursue any legal action
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How Does An iva work
An IVA is a debt solution designed to consolidate your debts into one monthly affordable repayment while providing you with the protection you need against your creditors and allows you to resolve your financial issues in a structured manner. An IVA also enables you to avoid and interest charges your creditors may be adding to your debts, as all interests and charges on your debts will be frozen the amount you owe will never increase.
Rather than struggling with unaffordable debt payments to many different creditors, an Individual Voluntary Arrangement allows you to make a single affordable repayment to your debts while leaving you enough disposable income to cover all your living needs.
To set up an IVA you will need to work with a qualified Insolvency Practitioner (IP) to draw up the terms of your IVA. Your IP will also handle any contact with your creditors on your behalf. You will be required to make regular monthly payments at the amount you have agreed with the IP. The IP will then distribute these payments accordingly to all your creditors.
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What is the Criteria to qualify for an IVA
An IVA is one of the most popular debt solutions for people leaving in England, Wales & Northern Ireland.
However, it is important to ensure that an IVA is the best solution for your circumstance.
Here are some qualifying criteria for an IVA:
- You must have at least two separate debts.
- You must owe at least £7,000 in unsecured debts.
- You have enough disposable income spare to make payments to your IVA each month.
- You must reside in England, Wales or Northern Ireland. Note that IVAs are not available in Scotland, but there is a similar debt solution called a Trust Deed.
How To Apply For An IVA?
Before you apply for an IVA it is important to make sure you contact an experienced debt adviser so that they can run through all your options with you. Everyone’s circumstances are different and while an IVA might the be the right solution for 1 person it may be the wrong solution for you.
Our debt advisors will carry out an assessment and work out what the best advice is for your circumstances, they do this by assessing your creditors, repayments and working out your affordability after conducting an income and expenditure.
If after consulting one of the advisers you decide to apply for an IVA, the next stage would be for us to send out some paperwork for you to sign and send back we will then liaise with your IP to set up the IVA.
Step 1: Initial Call
In this initial call, your debt advisor will discuss everything you need to know about an IVA and the process involved in setting one up. They will explain to you the consequences and risks of entering an IVA. They will also inform you what will happen if your Individual Voluntary Arrangement is not approved or successfully completed. Additionally, your advisor will set out the pros and cons of the IVA. They may also explain to you any other debt solutions available depending on yourcircumstances.
Step 2: The IVA Proposal
The IVA proposal sets out the terms of the arrangement between you and your creditors. It forms the basis of offering a deal to creditors. The proposal includes the reasons why you have become insolvent and stipulates your attempts to solve your financial difficulties. Your Insolvency Practitioner will act as your nominee and will present the proposal to your creditors.
Step 3: Issuing an Interim Order
This order is issued to provide an initial grace period and prevent your creditors from taking any further action against you while the IVA is being prepared. To obtain an interim order, your IP will be required to file the following:
- The IVA proposal
- Notice of proposal signed by you and your IP
- The application of an interim order accompanied by a witness statement
Step 4: Meeting with the Creditors (MOC)
At this stage, a meeting will be scheduled and creditors will be able to vote for or against the proposal and submit any of their claims. If more than 75% of the creditors vote in favour of the IVA proposal, it will be accepted. If more than 25% of the creditors vote against the proposal it will be rejected, at this point, you will need to consider other forms of insolvency, including bankruptcy.
Step 5: Implementing the IVA
Once the IVA has been accepted, the supervisor will notify you, the creditors and the court.
Once you have finished the IVA, you will be issued with a certificate of completion to confirm that the IVA has been completed.
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Benefits Of An IVA
How Long Does An Iva Last?
Even though there is actually not set length written into the Insolvency Act 1986, an IVA typically lasts for 60 months (5 years). In some circumstances, an IVA can last for less than 5 years for example if you were able to offer your creditors a large sum of money to settle your unsecured debts. Similarly, it can last for more than 5 years if you need to make up for reduced or missed payments or if your proposal states that the Individual Voluntary Arrangement should be extended if you can’t manage to release any equity at the end of the 5th year.
How Much Does An IVA Cost?
There are different costs and fees involved in an IVA process. Most IVA companies will not charge any upfront fees for setting up your IVA. Instead, the charges will be included in your agreed monthly payments after the IVA is approved. There are three main charges involved when setting up an IVA:
- The Nominee Fee: This is the cost incurred while putting together your IVA proposal for the creditors. An IVA requires a qualified Insolvency Practitioner to set up so the nominal fee largely depends on the practitioner you use and who your creditors are.
- The Supervisor Fee: The actual fee is usually set at 15% of total payments into the IVA. The fee covers the on-going costs of the IVA.
- The Disbursements: These are payments made to third parties involved in the IVA. They cover essentials, such as the registration fee that comes with being added to the insolvency register.
Can You Get Car Finance After An IVA?
Just like any other form of credit, this will largely depend on the lender. It depends on many different factors, such as the value of the car and your affordability. 1 year after your IVA has completed your defaults will be removed from your credit rating, so you would be better waiting so you avoid paying higher interest rates on credit borrowed.
Can I Get A Mortgage After An IVA?
Yes you can get a new mortgage after an IVA. However, you may not be eligible for 100% of promotional offers. Most of these offers are usually available to customers with high credit ratings and a decent size deposit to contribute. This usually does not apply to people who have been on an IVA. You will probally find the lenders who are willing to lend are sub prime and charger higher rates then high street banks.
Does An IVA Affect My Credit Rating?
An Individual Voluntary Arrangement remains in your credit files for 6 years (72 months), after 6 years any debts involved in the IVA are removed from your credit score.
What’s Best an IVA or Bankruptcy?
Both IVA and bankruptcy are forms of insolvency and provide the same outcome in regards to getting you debt-free. An IVA lasts between 5 to 6 years. This can be a long time to live on a budget. However, the process of setting up an IVA is a lot less daunting than bankruptcy.
Bankruptcy, on the other hand, could be the quickest way to deal with your debts. Most bankrupts are discharged after 12 months. You may need to pay into bankruptcy a little longer, but most bankruptcy cases are usually over within three years.
What are the IVA pros and Cons?
- Protects you against action from unsecured lenders
- Fixed repayment plan
- Writes off unaffordable unsecured debt upon successful completion
- Helps homeowners avoid repossession
- It affects your credit rating for 6 years from the date it is accepted
- Lasts longer than bankruptcy
- You’ll only have little money for non-essential
- Can be completed without the approval of at least 75% of your creditors
- You’ll appear publicly in the Individual Insolvency Register
How To Choose An IVA Company?
- Be Well Established
A good IVA company should be highly experienced and have been well established for a number of years. An IVA is legally binding and the IVA proposal must perfect for your creditors to accept you also need a company you know can administrate your IVA properly.
- Offer the Affordable Monthly Payments
Make sure the company conducts a proper review of your finances, it is important to get a payment you can actually afford as if your payments are to high you risk defaulting and going back to square one.
- Should Be Highly Reviewed
The IVA Company should be highly reviewed. Positive ratings are an indication that past and present clients were happy with the services offered by the company.
- Be Confidential
Debt is a private issue. Thus, it is important that you choose a company that will keep your information 100% private.
What are the different types of IVA?
There are three major types of IVAs:
- Full and Final IVA
A full and final IVA is when you make a one-off payment to your creditors in order to pay back all your debts. It is usually recommended for people who have a large sum of money readily available to repay the remaining unsecured debts. The full and final IVA does not have to be the total outstanding debts. However, for it to be considered by your creditors it must be of a reasonable proportion of your total debts.
If you are expecting are a large sum of money, you need to contact your debt management company. They will advise if the money you have is sufficient to be considered by your creditors. They will also help you to put together the proposal for your full and final IVA.
- Joint IVA
Joint IVAs are bit of a myth as an IVA is basically an individual debt solution. What people mean when referring to joint IVA is “inter-locking IVA”, where both the husband and wife have two separate IVAs. In such a case, the IVA is described as interlocking, especially if one of the spouses is dependent on the other. If you have a joint debt and are planning to enter into an IVA, be sure to contact a professional debt adviser so you know how it will affect the other person named on the debts.
- Self Employed IVA
A self-employed IVA is a debt management solutions specially tailored for the self-employed. A significant amount of your personal and business debts are written off, and you repay the rest in manageable monthly payments with adding of interests, chasing from your creditors and more legal action threats. With a self-employed IVA, you can continue using essential trade suppliers and lines of credit and keep any tools, machinery and stock you need for your business.
If you are looking for a debt solution, it is recommendable you first consult your debt advisor. There are many debt solutions available, apart from IVAs and bankruptcy. Your debt advisor will examine your financial situation and recommend the most viable debt solution. If you are looking for a highly experienced debt advisor, Contact Us.
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