An IVA or Individual Voluntary Arrangement is a debt solution where you can get debt relief from your outstanding credit commitments. Under an IVA debts can be written off at the end of the debt solution so that you repay what you can reasonably afford. This means you only have to pay an amount which is affordable to you.
The Scottish version of an IVA is a Protected Trust Deed which only lasts for 4 years.
What Is An IVA?
An IVA is a form of debt resolution. It lasts for 5 years and is administered by a licensed insolvency practitioner who is responsible for ensuring you repay what you can reasonably afford each month.
An IVA is a form of insolvency but it’s not as severe or restrictive as bankruptcy. All debt solutions where you fail to meet your contractual agreements will mean your credit file will be affected, so an IVA is the same and will leave a mark on your credit file for 6 years. This default is automatically removed after 6 years.
You make a proposal which is offered to your creditors in the IVA. The proposal includes all disposable income (this is the amount of money you have left over after paying all your essential bills but not paying your creditors) and any equity from assets about £5,000 after fees and charges. If the equity is £5,000 but the fees to release this money is £2,000 then they won’t even consider them as assets in an IVA. So, whilst the IVA will write off debts it won’t always affect your assets.
You can usually keep your house and cars in an IVA and even if there is equity it depends on whether the money can be released from the property. It’s unusual to be able to remortgage or release the money from a property after 4 years in an IVA.
Examples of a Successful IVA
There are lots of different ways an IVA can be managed. For example, you may not have the disposable income each month to make the repayments so may decide to offer a lump sum IVA. This is where you offer a lump sum payment, usually at least £8,000 towards your creditors in exchange for the rest of the debt to be written off. This means the debt is resolved in 1 year.
The typical IVA would look similar to this:
Disposable Income: £200 x 5 years
Total repaid = £12,000
Debt written off = £28,000
Out of the £12,000 the insolvency practitioner will keep some of the money so you don’t have to pay for the fees of the IVA company. Technically, you are paying for the fees because if you won the lottery you would have to pay the total amount of debt back, plus the fees of the insolvency company (usually about £6,000).
Remember, if you enter an IVA it will affect your ability to gain credit in the future and you won’t be allowed to borrow money while in the IVA either.