IVA: the pros and cons of Individual Voluntary Arrangements

posted by in Living with debt

This page contains information about debt solutions available in England, Wales and Northern Ireland. Debt advice in Scotland involves similar but different solutions. Before considering an IVA as a debt solution, please make sure you fully understand the risks involved when entering an IVA.

To highlight the 25th birthday of IVAs we’re producing a series of blogposts about individual voluntary arrangements, their pros and cons, the process, and how they compare to other debt solutions.

Before writing this blogpost I researched the title on the internet and was shocked by the amount of inaccurate information about Individual Voluntary Arrangements (IVAs) on the web.

By just reading a few of similar-titled articles I found a wealth of inaccuracies and half truths.

So I’d say the first con of an IVA is the amount of advertising that masquerades as ‘information’ on IVAs. Always remember to always take free and impartial advice before entering into an IVA.

The pros of an IVA

  • Legally binding on your creditors: Your creditors can no longer take any further legal action against you; they also cannot contact you either by post or phone. If approved the creditors have to abide by the IVA as agreed. This includes writing off a percentage of your debt.
  • A time frame of 5 or 6 years: Most IVAs have a time frame of 5 or 6 years, however this may be extended by 12 months if you have equity in your property which you cannot release for the benefit of creditors.
  • You’re not forced to sell your own home: In an IVA you would not be forced to sell your home but you would be expected to attempt to re-mortgage your property 6 months before the IVA ends.
  • You can keep certain assets: In an IVA it is possible that you can retain assets such as vehicles. Extra IVA payments may also be offered in place of retaining other assets and your creditors will decide if they agree to this.
  • You pay something back: Our clients often don’t want to go down the bankruptcy route as they realise that their creditors in most cases won’t see any return on the money borrowed. In an IVA you would offer to repay a percentage of the debt owed to your creditors, showing you have made your best efforts to repay as much as you can.
  • Affordable payments: You will make an affordable monthly payment that takes into account all essential payments in your budget.
  • Adaptable if things change during the term of the IVA: 5 or 6 years is a long time and during this time there may be a number of changes in your circumstances.  IVAs can be really flexible and if required you will be able to vary the terms of the IVA with the agreement of your creditors.
  • You have support: A licensed Insolvency Practitioner will guide you through the process, their support and experience should act as a reassurance through the course of the IVA.

The cons of an IVA

If you read a lot of the advertising surrounding IVAs you wouldn’t believe there are any cons, however…

  • An IVA can be strict: You will be asked to stick to a budget for 5 or possibly 6 years and this will be complemented with a review off your income and expenditure every 12 months to make sure that the payments continue to be affordable.
  • An IVA could affect your job: An IVA is a form of insolvency and could affect some professions; you would need to check the terms and conditions of your employment.
  • Rejection and failure: Creditors could reject the proposal outright or the IVA could fail at anytime due to a significant change in your circumstances that mean you are unable to pay.
  • Criteria: As we said, an IVA is not for everyone so you need to take advice to ensure that this is the best solution for you. This can even be dependent on who your majority creditors are, and their attitude towards IVAs.
  • Credit score: An IVA will stay on your credit file for 6 years from the day it starts. You won’t be allowed credit above £500 for the duration of your IVA and it may be difficult to gain any credit until the IVA has cleared from your credit file.
  • An IVA is a long term commitment: 5 or possibly 6 years is a longer time frame than bankruptcy. People going bankrupt will be discharged after just 12 months and have to pay contributions for 3 years. An IVA is a legally binding agreement for both you and the creditors which may contain legal sanctions to make sure you stick to the contract.
  • Public record: An IVA is a form of insolvency so is listed on the Insolvency Service website. This database can be searched by anyone.
  • Fees: All IVA firms have to charge a Nominee and Supervisory fee; this is taken from payments you make into the IVA and is not an additional cost to you. Some IVA firms charge an upfront fee for the drafting of an IVA proposal.  Always make sure you take free and impartial advice.
  • Bankruptcy: If your IVA does fail there is a risk of bankruptcy proceedings.
  • You may need to re-mortgage your home: Although you won’t be forced to sell your property with an IVA you would be expected to try and re-mortgage in the last 6 months of the IVA. If this isn’t possible the IVA would be extended from 5 to 6 years. If you were successful in re-mortgaging then it’s likely that it would be at a higher interest rate.
  • Other debts: Only debts that were included in the original IVA would be discharged at the end of the IVA, so if you had taken out any further debts these wouldn’t be included and you’d still have to repay these.

If you’d like to find out if an IVA is a solution that’s suitable for you then the best place to start is with our online advice tool Debt Remedy.

Matthew worked as an IVA drafter prior to working in social media. In a former life he wrote scripts for Eastenders, Emmerdale and Hollyoaks. He has 3 chickens, 2 dogs and a rabbit.

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  • chloe RM

    As you mentioned in your article, when I first thought about entering in an IVA, I started by looking it up on Google… as you said, the only thing that this achieved to do was confuse me. I live in Birmingham, so I thought the best way would be to try to find a specialised local company, so that I could actually go there and talk face to face to an adviser to make sure it wasn’t a scam/fake company. I had to have a few consultations before I found one which I thought I could trust (http://www.debtlifeboat.co.uk/). Although I remember coming across their website, I wasn’t entirely convinced by the feel of it so decided to go check it out for myself. The whole process hasn’t been easy, and even if I was mad aware of it, I didn’t anticipate how hard it would be to live on the very strict budget I was to be on.
    I somehow managed to get through it but, speaking from experience, I definitely agree that IVAs aren’t the best solution for everyone, and should be very meticulously thought about.

    Thanks for your post, really wished I came across it when I was trying to gather information!

    Chloe