Sep 25
2009An IVA (Individual Voluntary Arrangement) is a legally binding agreement that can help borrowers write off the unsecured debt they can’t realistically hope to repay in a reasonable time.
It’s an arrangement between them and their unsecured lenders: if they can agree on terms, the borrower will commit (in most cases) to making regular monthly payments for five years, and the lenders will agree to accept those payments, not to enter into/pursue any legal action against the borrower, and to write off all outstanding unsecured debt once the IVA has come to a successful conclusion.
IVAs - the step-by-step process
If you’d like to know more about IVAs, you should start by contacting an Insolvency Practice (an organisation that’s qualified to carry out IVAs).
Tell them about your finances and they’ll be able to tell you whether they think an IVA could be the right solution to your debt problems. If they do, they’ll tell you all about the pros and cons of an IVA. If you decide to go ahead, they’ll work with you to draw up an ‘IVA proposal’, which details how you propose to repay as much of your debt as you can - assuming the IVA goes ahead.
Then, it’s up to your lenders to vote on the proposal. If it’s approved by lenders who collectively ‘own’ 75% or more of your debt, the IVA can start. It’ll become legally binding on everyone, including any lenders who voted against it, or who didn’t vote at all.
Once your IVA has started, you’ll make just one payment per month, to your IP (Insolvency Practitioner - the expert who’ll deal with your case). They’ll subsequently pass on the agreed amounts to each of your lenders.
Note that your monthly payments will be based on what you can realistically afford once you’ve taken into account all your essential expenses, from your mortgage/rent and your utility bills to the cost of your food and essential transport. So IVAs aren’t appropriate for people who can’t commit to making those regular payments.
In most cases, this will go on for five years. If you’re a homeowner, you may be required to free up some equity from your home in the 54th month of the IVA, so you can contribute more to the IVA.
Once you’ve paid everything you’ve agreed to, your IVA will draw to a successful close. Your unsecured lenders will write off all the outstanding debt, and you’ll be legally debt free.
You IVA will, however, remain on your credit report for one more year, and this will make it harder and/or more expensive to obtain further credit during that time.
To see how an IVA could help you, click here.