Did you hear the one about ‘writing off up to 80% your debts’? We have too. Unfortunately some of the myths about Individual Voluntary Arrangements (IVAs) can have very little to do with the reality.
These myths can confuse people considering an IVA as a solution to their debt problems, and those living on one. We’re here to help.
Let’s look at the most common misconceptions about IVAs and the facts behind the myths:
Myth 1: An IVA can write off all of your debts overnight under new government legislation
Fact: No it can’t. While it could be argued that an IVA can write off some of your unsecured debt, it’s not a ‘clean slate’ solution. And the Government legislation underpinning IVAs isn’t “new”.
Some disreputable companies use this line to refer to government legislation that was introduced as far back as 1986. There’s no instant solution that’ll make you free of your debts.
If you’re approved for an IVA you’ll need to repay what you can afford normally over 60 months. This is based on a budget created during the debt advice process, and agreed by your creditors.
Myth 2 : An IVA is the answer to everyone’s debt problem
Fact: No it’s not. Debt advice needs to be tailored to your individual needs: an IVA might not be right for your circumstances.
Many people worried about debt find out about debt solutions before getting debt advice. This can be from watching TV, knowing someone in a similar solution, or from web forums. But it’s important to get debt advice before agreeing to a particular debt solution.
As with all debt organisations, we’ll go through your current situation as a whole, checking your income and expenditure in detail. Then, if there’s one that is suitable, we’ll recommend the debt solution that’s best for you.
Myth 3: If I have an IVA and own a property I’ll have to re-mortgage
Fact: This isn’t the case for every IVA client who owns their own home.
If you own a property during an IVA you’ll be asked to look at the possibility of re-mortgaging in the last 6 months of your agreement.
However, most clients find it very difficult to obtain a new mortgage during an IVA. As an alternative, creditors will usually allow them to provide a lump sum from a third party or extend the term of the IVA by up to a maximum of 12 months additional payments.
Myth 4: An IVA is free
Fact: You will be charged a fee for an IVA.
Fees for an IVA vary depending on the work involved. Some providers charge an upfront fee, whilst others include the fees in your monthly payments. The fees cover the set-up, supervision and other running costs involved in your agreement.
The fees you pay for your IVA should be part of your agreement, so it’s important to check and understand them before you proceed with an IVA.
Myth 5: All of your creditors need to agree to your IVA proposal for it to go ahead
Fact: No, just a proportion of them. All of your creditors will be sent a copy of your IVA proposal.
Not all of your creditors need to accept the IVA terms for your IVA to be approved. The proposal needs to be accepted by 75% of creditors in value who vote at the ‘creditors meeting’.
Even if some creditors vote to reject your IVA they can be outvoted by creditors who hold a higher proportion of your debt. Once approved it’ll be legally binding on all your creditors, even those who voted to reject, or didn’t vote at all.
Myth 6: Once it’s set up, the payments into an IVA can’t be changed
Fact: No, many people considering IVAs don’t realise that if their circumstances change these arrangements can be varied.
If the change in circumstances is a significant one your IVA Supervisor may have to call a ‘variation meeting’. This is where your creditors will be allowed to vote again on any changes to the IVA.
Common reasons for calling a variation meeting include an unexpected reduction in income, a relationship break up or a pregnancy. As an IVA is a long-term solution variations to the arrangements can be necessary to ensure both the creditor and the client are happy.
Myth 7: If I get an IVA I’ll have to tell my employer
Fact: Not usually. An IVA can affect your employment but only if you work in certain industries, so you may not have to tell your boss.
You should check your contract or speak to your HR department if you think that your job may be affected by agreeing to an IVA.
Most people can have an IVA without it affecting their employment apart from those working in law or finance; you also can’t be the trustee of a charity if you’re on an IVA.
Doctors, police officers, members of the armed forces and dentists may also need to declare their IVA to their employer. However, it’s unlikely to mean they’ll lose their jobs.
Myth 8: If I get an IVA, people will find out
Fact: Not often. If you enter into an individual voluntary arrangement (IVA), it will be recorded on your credit file and the Insolvency Register.
When your IVA is approved it’ll be registered on your credit file with the credit reference agencies (CRAs). This will appear on your file for six years after the date it is first approved.
At the end of the IVA you’ll receive a completion certificate to send the CRAs to amend your file to show that it’s complete. Nobody will be able to see this information without your permission because your credit file is private.
However, your name will be added to a public register called the Individual Insolvency Register during your IVA and for 3 months after it ends. It’s unlikely that anyone will see it, but it’s something to bear in mind.
Myth 9: I can take out more credit while I’m on an IVA
Fact: You can’t take out any new debt above £500 during the IVA without permission from your IVA Supervisor.
One of the key commitments of entering into an IVA is agreeing not to use more credit above £500 for the duration of the agreement. If you do, you will be in breach of the terms of the IVA and it could fail. If you have circumstances where you need credit then you should speak to your supervisor
Myth 10: If you miss one IVA payment, it will fail
Fact: No, but you need to contact your supervisor as soon as possible if you have a problem making your payment.
Your IVA agreement will allow you a short payment break if you have an emergency. You may also be able to alter your monthly payments with the agreement of your supervisor if the change is small.
If you can’t make a payment to your IVA you must let your supervisor know as soon as possible. If you need a longer payment break, or your situation has changed a lot, your Supervisor may need to contact your creditors to agree the changes.
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If you’re struggling with debt, and think you may need debt advice, use our Debt Remedy tool to get free and impartial debt advice online. Make sure that the debt solution you get is the right one for your circumstances.
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