Is an IVA worth it?

When debt piles up, it's easy to feel overwhelmed. One way out is an Individual Voluntary Arrangement (IVA). IVA is a formal, legal deal between you and the people you owe money to.

This blog offers all you need to know about IVAs. By reading this, you'll gain comprehensive guidance to decide if an IVA is the right strategy for you.

What is an IVA?

An IVA is a legally binding agreement between a person and their creditors. It lets you pay back some or all of your debt over time.

To apply, gather your financial details and consult an insolvency practitioner (IP) to draft a proposal for your creditors. An IP helps you work it all out.

Who is eligible for an IVA in the UK?

Knowing if you can apply for an IVA is the first step. In general, you need to owe money to two or more creditors and have a regular income. But that's just the start. An IP will look at your entire financial situation and assess if an IVA is a good fit for you.

Advantages and disadvantages of IVAs

Weigh up the pros and cons of an IVA before you decide to commit to an agreement. This section offers a balanced look to help guide your decision. By considering these pros and cons, you're better equipped to pick the right debt relief strategy for you.

Advantages of IVAs

Freeze on interest and charges: Once you start an IVA, interest and late fees stop. This makes it easier to pay off the main debt.
Legal protection from creditors: An IVA is a legal agreement. This means your creditors can't take you to court or bug you for payments for the IVA.
Flexibility in repayment terms: An IVA is not one-size-fits-all. You and your IP can work out terms that suit your income and living costs.

Disadvantages of IVAs

Effect on credit rating: An IVA will stay on your credit report for at least 6 years. This can make it hard to get loans or credit in the future.
Limitations on debts: An IVA does not include all debts. It doesn't cover secured debts like mortgages and car loans, meaning you'd still have to manage those payments separately. IVAs also usually don’t accept debts like student loans, and court fines.
Long-term commitment: An IVA typically lasts for 5 to 6 years, requiring consistent monthly payments throughout this period. This duration necessitates careful budgeting and financial discipline to adhere to the agreed repayment plan.

Can I get a loan with an IVA?

Yes, it is possible to get a loan with an IVA. However, securing new credit during an IVA is challenging and typically requires the IP's permission. Lenders may view applicants with an IVA as high-risk, and borrowing could risk the IVA's success.

Secured loans for bad credit could be a suitable option for people with an IVA. These loans use your home as security. However, always think carefully before securing any loans against your home, especially if you already have problems with debt.

If you're considering a secured loan during your IVA, it's important to note that such loans are typically used to settle the IVA early. This means the funds from the secured loan must be applied to pay off the remaining IVA balance, effectively concluding the arrangement. Your IP will need to approve this process, and your creditors must agree to the early settlement terms.

How much does IVA cost?

Your IP will charge for setting up and managing the IVA. Fees are usually part of your monthly payment. However, initial payments may primarily cover these fees before reducing the actual debt. These costs vary, so it's worth shopping around and asking questions.

How does an IVA work?

In the IVA process, creditors are an important part. They are the ones you owe money to. Here's what their role looks like:

Proposal Review: Creditors get a chance to look at your IVA proposal before the meeting. They can ask questions and suggest changes.
Voting: Creditors vote on whether to accept your proposal.
Payments: Once the IVA starts, you make payments to your IP, not directly to creditors. Your IP then divides this money among them.
Communication: During the IVA, your creditors can't chase you for money. All contact goes through your IP. But they will get yearly updates on how your payments are going.

Understanding the role of creditors helps you know what to expect. It offers you guidance as you go through the IVA process.

What happens at the end of an IVA?

Making it to the end of your IVA means you've stuck to the plan and you're now debt-free. But what happens at the end? Here's what to expect:

Completion certificate: Once you make the final payment, your IP gives you a certificate. This shows that you've met all the terms of the IVA. It also means your remaining debt is written off.
Debts written off: As part of your IVA deal, some of your debt gets written off at the end. Your IP will handle this. They'll tell each creditor what part of the debt is gone. It usually takes a few weeks after your last payment for this to happen.

Ending your IVA the right way is key. Make sure you keep all the papers for future reference.

What if I miss an IVA payment?

Life is unpredictable. If you hit a rough patch while you're on an IVA, it's important to know your options.

Missed payments: Missing a payment is serious. Your IVA could fail and creditors might then take legal action. If you know you’ll miss a payment, talk to your IP right away. They can offer advice on how to handle it.
Changing circumstances: If your finances change for the worse, you're not stuck. Your IP can review your case and might adjust your payments. Make sure you keep your lines of communication open.

If things go wrong, don't panic. Reach out for advice and see what you can do.

What are alternatives to an IVA?

An IVA isn't the only way to handle debt. Other options exist, and it's worth knowing what they are.

Debt Relief Orders: These are for people with smaller debts and little income. They can be simpler than IVAs but have tight eligibility rules.
Bankruptcy: This is the nuclear option. It wipes out most debts, but the impact on your credit is severe. IVAs are often more flexible and can tend to be less harsh on your credit record in comparison to bankruptcy.
Debt Management Plans (DMPs): These are less formal than IVAs and are good for short-term debt problems. However, interest keeps adding up, which doesn't happen in an IVA. To learn more, read our guide: Is debt management plan right for you?

Each option has pros and cons. What works for one person might not for another. This guide aims to offer comprehensive advice on IVAs, but you should also consider other strategies for debt relief.

Conclusion

Deciding if an IVA is the right debt solution for you is an important step. An IVA is a long-term commitment that offers a structured way to clear your debt. But it's not without downsides, like its impact on your credit score and limitations on debts.

Weigh up the pros and cons carefully. If you can, seek advice from trusted professionals. Whether you go for an IVA or another route, the key is to make an informed choice.

At Central Trust, we can offer loans for people with IVAs. If you're considering a secured loan, speak to our qualified advisor. Contact us free of charge at 0800 980 6273, or complete our enquiry form, and we will return your call at a convenient time.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON YOUR HOME, THE LENDER MAY REPOSSESS IT.