What`s involved in setting up an IVA?

22 May 2009

If your debt problems have become so serious that you can`t see yourself ever being able to repay your unsecured debts, then you might feel that bankruptcy is your only option.

However, an IVA (Individual Voluntary Arrangement) could help you to avoid bankruptcy. An IVA is a legally binding agreement with your creditors in which you will repay an agreed portion of your debts, based on how much you can afford, after which the remaining debt will be written off.

While an IVA is still a form of insolvency and is a major financial commitment, it avoids some of the downsides of bankruptcy (such as losing your home), and as such is a preferable option for many people.

Your IVA: how it works

Discuss your options with a debt adviser Before you enter into an IVA, you should always speak to a professional debt adviser. Your debt adviser will discuss your situation with you and help you to establish which debt solution best meets your needs.

Draw up your IVA proposal

If your debt adviser thinks an IVA is your best option, they will refer you to an Insolvency Practitioner, who will work with you to draw up an IVA proposal. This details the proposed terms of your IVA, including how much you can afford to repay to each of your lenders.

Your lenders will then be invited to `vote` for or against your IVA proposal. Lenders accounting for at least 75% of your total debt must approve the terms for the IVA to go ahead.

Your IVA begins

If your IVA is approved, you will start making regular monthly payments to your Insolvency Practice, which will distribute the agreed amounts to each of your lenders. This will usually continue for five years.

There are some things to consider with an IVA. If you experience any rise in income - including salary rises and bonuses - you may be required to give up some of this additional income to pay towards your debts. Also, if you are a homeowner, you may be required to release some of the equity in your home in the 54th month of the IVA (half way through the final year).

Five years on: your IVA is completed If you successfully stick to the terms of the IVA for the full five-year period, your IVA will finish and you will be legally debt-free - any remaining debt will be written off.

Bear in mind that your IVA will stay on your credit rating for six years, potentially making credit harder to obtain and/or more expensive.

Back to debt consolidation blog home