You could save £100’s Per Month!

Ask your advisor for a personalised IVA example to see how much unsecured debt you could write off and calculate how much you could save per month!

How does an IVA work?

Many people would agree that modern day responsibilities are demanding; particularly on your finances.

Medical costs, car repairs and boiler breakdowns are just a few common scenarios whereby you might need financial aid urgently.

Naturally, many turn to loans as a way to pay for these emergency necessities.

However, a constant reliance on loans can, overtime, leave many struggling to manage their debt and how to pay it back.

Although bankruptcy is prevalently known as the main insolvency solution to uncontrollable debt, many are unaware that other alternatives exist, such as an Individual Voluntary Agreement (IVA for short).

Does an IVA Work for Me?

An IVA is a method of insolvency resolution whereby somebody can meaningfully pay back debts to their creditors, thus avoiding the need to petition for bankruptcy.

IVAs are legally binding agreements between you and the people you owe money to (your creditors).

The length of most IVA plans are, on average, 5 years (but the period of time can be completely dependent on an individual’s agreement).

As a result, you must be able to prove that you can consistently meet monthly repayments over your agreed period.

Alternatively, some people, if they have the option, prefer to provide a lump sum upfront (similar to a deposit) as a way to reduce their monthly repayments.

Once an agreement has been reached, all previous interest and charges on your debts will be stopped, and your creditors will be prevented from enforcing further penalties against you, including a petition for your bankruptcy.

So, if you are experiencing difficulty repaying your debts, an IVA can be a flexible and individualized solution to take back control over your finances in the way of a formal and affordable repayment plan.

If you decide to engage in an IVA, the next step will be to hire an Insolvency Practitioner (IP).

This can be an individual (typically an accountant or lawyer) or company (specialised debt management or IVA repayment firm) that will help negotiate a repayment plan with your creditors, as well as generally advise on how best to repay your debts.

In return, they’ll take a fee, usually from the repayments to your creditors.

How Much Will An IVA Cost?

Depending on your individual circumstance and debt amount, these fees can vary drastically, so it is always important to do your due diligence and research your IP options thoroughly before committing to one.

Once hired, you’ll work with your IP to formulate a proposal to submit to your creditors.

Although your IP should advise you accordingly, as a general rule, your proposal must outline your current income, regular outgoings and a reasonable suggestion as to how much you can pay each of your creditors.

However, it is important to keep in mind that your creditors are not legally obliged to accept, or even consider, your proposal.

Therefore, it is imperative that you submit a reasonable and convincing proposal (again, something your IP should advise you on) that your creditors will agree to.

If your proposal is approved by your creditors, you’ll be legally obligated to stick to your agreed repayment plan until the end of the term period.

Any repayments you make will be paid directly to your insolvency practitioner, who will then distribute the money to your creditors, as well as take a cut to pay their fees (some practitioners ask that you pay them in full upfront before your IVA is set up, but this situation is less common).

Arguably the most beneficial aspect of an IVA is that, if your repayments do not cover the full amount of debt you owe by the end of your agreement, the remainder of your debts will be completely written off.

How Much Can I Write Off?

On average, IVA’s have written off between 50% and 60% of an average debt amount of £60,000, resulting in a £25,000-£30,000 reduction in the total amount previously owed.

If there’s a significant change in your circumstances which affects your ability to meet your IVA payments (for example, you lose your main source of income) your IP can help negotiate your initial agreement with your creditors (known as a ‘variation’).

Although up to 90% of IVA variations are approved by creditors, it is completely situational and, again, possible for your creditors to deny your variation request.

Consequently, if you consistently miss payments as a result, your IVA will fail, meaning your creditors may petition for your bankruptcy.

In the case of a windfall payment (an unexpected receival of a large sum of money) during your IVA agreement, for instance, if you receive money from inheritance or a lottery win, this will usually be paid straight to your creditors.

If you discover you’re owed some money before you agreed to your IVA, your creditors might also have a claim to that too.

This is something your IP should explain to you in depth.

Conclusion:

Bearing all of the above in mind, the best practise before engaging in any major financial decision is always to discuss your options with a professional first.

Specifically for IVAs, make sure to ask and clarify all queries you may have with your IP before initiating your IVA.

This is the best way to ensure you’ll receive advice best tailored to your particular situation, allowing you to knowledgeably decide what kind of repayment plan will work best for you.