Understanding Individual Voluntary Arrangements (IVA) in the UK

Navigating through debt can be an overwhelming experience, but for those in the UK, an Individual Voluntary Arrangement (IVA) may offer a manageable path to financial recovery. This blog post aims to demystify the concept of IVAs and provide actionable advice for those considering this debt solution.

What is an Individual Voluntary Arrangement (IVA)?

An Individual Voluntary Arrangement (IVA) is a formal and legally binding agreement between a debtor and their creditors to pay off debts over a period of time. Initiated by the debtor, this solution allows individuals facing financial difficulties to propose a repayment plan, typically lasting five years. Once agreed upon and approved by 75% of the creditors by debt value, the IVA prevents creditors from taking further legal actions while the agreement is in effect.

Eligibility Criteria for an IVA

Not everyone can apply for an IVA. Here are the basics to determine if you might be eligible:

• Residency: You must be a resident in England, Wales, or Northern Ireland. Scotland has a similar solution called a Debt Arrangement Scheme (DAS).
• Debt Level: Typically, there is no legal minimum, but most firms prefer a debt of at least £6,000.
• Number of Creditors: IVAs generally require at least two separate creditors.
• Regular Income: You should have a regular source of income to make monthly contributions towards your debts.

How to Apply for an IVA

To begin an IVA, follow these steps:

1. Consult an Insolvency Practitioner (IP): Only a qualified IP can propose and manage an IVA. It’s crucial to select a reputable practitioner.
2. Assessment: The IP will assess your financial situation to ensure that an IVA is the most suitable option.
3. Proposal: Your IP will help you develop a proposal, outlining your payment plan, which is then sent to all your creditors.
4. Creditors’ Meeting: Creditors will meet to vote on your proposal. Approval requires at least 75% in debt value.
5. Commencement: Once approved, the IVA will be in place and you must start making payments as agreed.

Pros and Cons of an IVA

Advantages:

• Debt Forgiveness: Upon successful completion, remaining debts included in the IVA are written off.
• Legal Protection: Creditors included in the agreement cannot pursue legal action or additional charges while the IVA remains active.
• Fixed Duration: An IVA has a clear end date, typically after five years.

Disadvantages:

• Impact on Credit Score: An IVA will adversely affect your credit rating for six years from the start date.
• Rigid Budgeting: Living within a budget can be strict and challenging during the term of an IVA.
• Risk of Failure: Failure to comply with the terms can lead to the IVA’s failure, possibly leading to bankruptcy.

Navigating Life During an IVA

Living under an IVA requires careful budgeting and financial management. It is essential to maintain open communication with your IP and adjust your lifestyle to meet your financial commitments. Regular reviews will occur, and as your financial situation changes, your IVA might be adjusted accordingly.

Conclusion

An Individual Voluntary Arrangement can be a viable option for regaining financial stability for those who meet the criteria and are willing to commit to the restrictions it imposes. However, it requires careful consideration and professional guidance. Consulting with a certified Insolvency Practitioner can help clarify your options based on your specific circumstances.

For more information and guidance, visit the official UK Government’s guide to IVAs.