Understanding the Individual Voluntary Arrangement (IVA) in the UK

When faced with overwhelming debt, finding a pathway out can seem daunting. One viable debt management solution available in the UK is the Individual Voluntary Arrangement (IVA). This legal agreement between you and your creditors can provide relief and a structured plan for addressing your debts without the harsher consequences of bankruptcy.

What is an Individual Voluntary Arrangement (IVA)?

An Individual Voluntary Arrangement (IVA) is a formal and legally binding agreement made between an individual and their creditors to pay all or part of their debts over a specified period of time, usually five years. An IVA must be set up by a qualified person, known as an insolvency practitioner. These practitioners assess your financial situation and help determine a payment schedule that is both feasible for you and acceptable to your creditors.

How Does an IVA Work?

Here’s a step-by-step look into the IVA process:

1. Initial Assessment: You’ll meet with an insolvency practitioner to go over your financial situation. This will include your debts, income, assets, and expenses.
2. Proposal Drafting: If an IVA is deemed suitable, your insolvency practitioner will draft a proposal to be sent to your creditors, which includes your payment plan.
3. Creditors Meeting: Your creditors will review and vote on your proposal. Approval requires creditors representing at least 75% of your debt value to agree.
4. Commencement: Once approved, the IVA begins, and you start making payments to the practitioner, who then distributes these funds to your creditors.

Benefits of an IVA

An IVA comes with several significant benefits:

• Debt Forgiveness: Upon successful completion, any remaining debt included in the IVA is written off.
• Legal Protection: Once in force, the IVA prevents creditors from taking further legal or collection actions.
• Fixed Repayments: The repayments are fixed and based on what you can realistically afford.

Considerations Before Choosing an IVA

While an IVA can be highly beneficial for some, it’s not suitable for everyone. Consider the following:

• Impact on Credit Score: An IVA will negatively impact your credit rating for six years from the date it starts.
• Home Ownership Risk: If you own a home, you may be required to release equity from it to pay off your debts.
• Regular Income Requirement: IVAs generally work best if you have a regular income, as the payment plan requires consistent fulfilment.

Choosing the Right Insolvency Practitioner

Since an IVA must be set up by an authorised insolvency practitioner, choosing the right one is critical. Consider their experience, fees, and reviews by other clients. The UK Government’s Insolvency Service provides a database where you can find a licensed practitioner.

Actionable Tips for Managing an IVA

Here are some tips to ensure that your IVA is successful:

• Be Honest: Provide accurate and comprehensive financial details to your insolvency practitioner.
• Stick to Your Budget: Adjust your lifestyle to ensure you keep up consistent payments.
• Keep Communicating: Maintain open lines of communication with your insolvency practitioner and inform them of any changes in your financial situation.

For anyone struggling with debt, an IVA offers a manageable and structured way to regain financial stability. It’s a formal, yet flexible way to resolve debt issues while keeping more severe consequences at bay. Remember, it’s important to consider all factors and possibly consult with multiple professionals before deciding if an IVA is the right choice for you.