Five-minute guide to IVA's
An individual voluntary arrangement (IVA) is a repayment contract between you and your creditors. An insolvency professional will help you make a repayment proposal, but you'll need 75% of your creditors to approve this in order to enter into the contract.
Interest charges will be frozen and you can then legally discharge your debt.
Do I qualify for an IVA?
Typically, people suitable for an IVA have unsecured debts of £15,000 upwards with multiple creditors that they are unable to cope with. Homeowners could lose their home if they enter into an IVA.
What to consider before entering an IVA
An IVA will be noted on your credit report for six years so you may struggle to access credit even after your debts have been cleared. Mortgage lenders and creditors such as the Inland Revenue are unlikely to allow you to discharge your debts in this way.
Finally, in most cases you will need to pay the insolvency firm a fee, which can amount to thousands of pounds.
Where can I get more information?
To find out how you can get free help dealing with your debts, read our guide to free advice.
Moneywise.co.uk recently launched a new debt section, which includes the latest news and features on how to manage your debt the right way.
You can also watch Moneywise TV's quick tips on banishing your debt demons and download free factsheets on your different debt options, from bankruptcy to debt relief orders.
You'll also find all the contact details of debt charities that offer free help and support to people struggling with debt. And if you want to speak to an insolvency professional, then you can fill out our rapid response form, which will be passed on to a carefully selected group of firms who can explain your options.
Generally speaking, insolvency is to businesses what bankruptcy is to individuals. A company is insolvent if the value of its assets is less than the amount of its liabilities, or it is unable to pay its liabilities (loan payments) as they fall due. It’s an offence for an insolvent company to keep trading, so the main options available to an insolvent company are: voluntary liquidation, compulsory liquidation, administration or a company voluntary arrangement.
An alternative to bankruptcy, an Individual Voluntary Agreement is a legal agreement drawn up between the debtor, all creditors to whom money is owed (banks, credit cards etc) and a licensed insolvency practitioner who then administers the arrangement. Unlike a debt management plan (DMP), which is a more casual arrangement, an IVA is a legal process by which your unsecured creditors cannot then pursue you for payment of your debts outside the agreement. To qualify for an IVA, you must be a private individual (not a company), your debts must exceed £15,000 and you must have a regular income. If you are a homeowner with equity in the property, you may have to remortgage and use the equity to clear some of the debt before you enter into an IVA.
A report containing detailed information on a person’s credit history, a record of an individual’s (or company’s) past borrowing and repaying, including information about late payments and bankruptcy. It also includes all applications a person has made for financial products and whether they were rejected or accepted. Your credit report can be obtained by prospective lenders to determine your creditworthiness.
A person (or business) unable to pay the debts it owes creditors can either volunteer or be forced into bankruptcy – a legal proceeding where an insolvent person can be relieved of their financial obligations – but loses control over their bank accounts. Bankruptcy is not a soft option. Although it may wipe the financial slate clean, it is extremely harmful to a person’s credit rating (it will stay on your credit record for six years) and will adversely affect your future dealings with financial institutions. Bankruptcy costs £600 paid upfront.