Individual Voluntary Arrangements (IVA)
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We’ll ensure you only pay back what you can honestly afford, starting from £90/month
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If you’ve read our previous introductory articles about what an IVA is and how they work, you’ll already know that the fees charged by your Insolvency Practitioner (IP) are an important factor to consider when deciding who you want to initiate and manage your IVA process.
If you’ve decided that an IVA is the right insolvency solution for you, naturally, you may now be wondering what constitutes a reasonable fee rate, depending on your individual debt circumstance.
Before continuing with this article, it is strongly recommended that you review our foundational IVA articles (linked above) if you haven’t already, in order to give you a solid understanding of what they are and how they work.
If you’ve read them but need a short recap- 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 this 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 time period.
Alternatively, some people, if they have the option, may 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 individualised 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 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 provide you with general advice as to how best repay your debts.
To calculate your monthly repayments, all of your essential monthly expenditures (food, travel, utilities, insurance etc…) and priority debt arrear payments (mortgage payments, court fines, Council tax etc…) will be subtracted from your monthly income (wages, investments, etc…).
Once this has been worked out and decided upon between you and your creditors, you’ll never be asked to pay more than this amount.
In return for their services, your IP will take a fee.
This will usually come from the repayments you make to your creditors each month.
What this essentially means is, if your creditors accept your IVA proposal, they will agree to receive less back from you as a way for your IP to be paid.
In some more unusual cases, your IP may not decide to charge you at all.
However, as a result, your creditors will likely still add this ‘hypothetical’ IP cost into the payments you owe them each month (i.e. you’ll still be paying the same amount regardless).
Depending on your individual circumstance and debt amount, these fees can vary drastically, so it is always important to do your due diligence and to research your IP options thoroughly before committing to one.
As a general guideline, the two main factors which will affect the amount of IP fees you’ll have to pay are: the total amount of money you owe, and the amount of work the IP has to conduct on your behalf in the initiation and management of your IVA.
In England and Wales, previous data has shown that IP fees cost on average, £5000.00.
Although, this figure should be taken with a grain of salt, as IVAs can vary considerably depending on an individual’s financial situation.
Although rarer, some IPs may ask you to pay them in full upfront before setting up your IVA.
In this scenario, it is imperative that you are fully informed about the corresponding risks of proceeding with this method.
Uncredible or inexperienced IVA individuals or companies may claim they can get your IVA proposal approved by increasing your expenditure to unrealistic levels (and so lowering your monthly repayment amounts), but in return, ask for their fees in full, upfront.
Although some people may prefer this approach, it can be risky, as if your creditors deny your proposal request, you may not be able to recover any fees that you’ve paid upfront.
In more exceptional circumstances, there may be an instance whereby you might be required to contribute separately to your IP and IVA fees (i.e. in addition to your monthly repayments).
This situation could happen as a result of you receiving a large amount of money during your IVA.
An example of this could be a windfall payment (an unexpected receival of a large sum of money) from an inheritance or a lottery win.
This will likely be used to separately pay your IP fees and creditors.
Additionally, if you discover that 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 before initiating the process.
In summary, as with any large financial decision, you should do your own research and thoroughly evaluate your IP options before proceeding with an IVA.
As a guideline, some useful questions to ask yourself might be: what is the average IP fee paid for a person with a similar debt and income amount as me? Do I want to pay more of my fees upfront, or alongside my monthly repayments? After compiling your own research, you should diligently discuss your options with your potential practitioners.
This way, you’ll be better equipped to make an informed and balanced decision, as opposed to blindly choosing the first IP you see.