IVA F.A.Q Frequently Asked Questions

Why have I not heard of IVA's?

As the level of personal debt increases in the UK, IVAs have caught both the public and media attention.  According to the Insolvency Service, in the first quarter of 2007, there were 13,233 IVAs.

Who can enter into an IVA?

Any individual who cannot pay their debts may apply for an IVA.

Do I really need to use an Insolvency Practitioner?

An IVA can only be proposed and supervised by a licensed Insolvency Practitioner.

What if my creditors don't agree?

If at least 75% in value of creditors present in person or by proxy at a meeting of creditors are in favour of your IVA proposal, it will be approved. Once the arrangement is approved by a 75% majority, all creditors will be legally bound by the terms even if they rejected the proposal. It is important to note that during the negotiations and meeting creditors can suggest modifications to the proposal and you can choose whether to accept these or not. However, rejection of a particular creditor's modifications may result in their vote being counted as a rejection.

What if my creditors aren't all in favour?

If more than 25% in value of your creditors don't vote in favour, you can still consider bankruptcy or an informal arrangement with your creditors.

Will my credit rating be affected?

Once you have defaulted on your contractual payments and received a default notice this will be registered on your credit file, and will show on your credit file for a minimum of 6 years. Your credit rating will therefore be affected during the term of the IVA and the IVA would be registered on your credit file. If someone is checking your credit rating, such as a potential landlord, your credit rating may be an issue.

In undertaking an IVA, you will have to return your credit and store cards to the issuing financial institution.  You will not be allowed to take additional unsecured borrowings until your IVA has been completed.

However, an IVA does not mean that you are blacklisted for ever. In fact, your credit rating will be repaired as a result of you taking a positive step to resolving your debt issues and succeeding.

It will still be possible to take or change a mortgage while you are within an IVA but you will need to make sure you seek the advice of your Insolvency Practitioner for this before you make any arrangements.

Will my home be safe?

It is not usual for you to be required to sell your property whilst in an IVA.

However, if you do own your home, you may be required to remortgage at the end of the IVA in order to release a lump sum into your IVA.

If you have significant equity in your home which you intend to release for the benefit of your creditors, a specialist mortgage advisor will assist you.

Typically, the release of equity occurs in the final year of the agreement.  However, it may be possible to propose to creditors that you remortgage earlier than this which could enable you to complete your IVA early.  In certain circumstances a full and final settlement to creditors can be negotiated on an equity release basis only but this requires a large amount of equity from the property.

It is important to bear in mind that releasing the equity in your home should not leave you in financial difficulty. Obviously your mortgage repayments would increase, but these will always be affordable.

If you do not want to release the equity in your property, you may wish to see if a third party, such as a friend or family member, would put forward the value of the equity.  The money representing the equity in the property does not actually have to come from the property.

What about any other assets of value?

If you have other valuable assets in your possession, these will be assessed on a case-by-case basis.  It is usually possible to exclude a car of a reasonable value on the basis that it is required for work and essential travel.  If your car is financed on a Hire Purchase agreement, the outstanding balance cannot be included in the IVA because it is secured on the vehicle and if you don’t continue to make payments, the finance company will simply repossess the car.

However, if you are making payments on an HP agreement and you complete these payments during the period of the arrangements, it is likely that you will be required to increase your monthly contribution into the arrangement by the amount of this saving. In some cases, you may decide it is best to sell the car back to the finance company straight away.  If this leaves you with an outstanding balance due to the finance company, this debt can be included within the IVA.

It is also likely that the capital invested in an endowment policy or a savings account will have to be released and offered to creditors as part of the IVA agreement.

What if I get a financial windfall during the term of an IVA?

It is normal for IVA agreements to contain a "windfall" clause, meaning assets such as lottery winnings, bonus payments, gifts or inheritance must be declared to the Insolvency Practitioner and paid into the IVA for the benefit of the creditors.

How much will I have to pay into my arrangement?

This figure is dependent on your personal financial circumstances and will be agreed between you, the IP and your creditors at the start of your IVA.  Monthly payment will not normally be below £250.

Would my lifestyle have to change if I entered into an IVA?

Providing that your lifestyle is not excessive, you will not have to change it just because you have entered an IVA. There are guidelines to ensure that you have a reasonable standard of living.

However, allowances cannot be made for such things as social life, lottery, sky subscription and smoking, etc. These are not seen by creditors as essential living expenditures, particularly if you are unable to meet your current contractual monthly payments and are asking them to write off a percentage of your debts by agreeing to the terms of your IVA.

You will be expected to live within a budget, which is why it is very important that you consider all the normal household living expenses and include these on your financial statement.

Can I have a bank account if I am in an IVA?

You can have a bank account. However, you may wish to open a fresh bank account when preparing your IVA proposal as if you owe money to your existing bank they have the right to "off-set" any monies owed to them before your IVA is approved.  So, if you have debts with your bank such as a credit card or personal loan, and you pay your salary into your bank account, the bank may remove the money you pay into your account to "off-set" against outstanding debts. 

If you are not overdrawn and do not have loans or credit cards with your bank, you should not need to open a new bank account. 

Can I stay in business?

There is no restriction on your business activities.

Can I complete my IVA earlier than the agreed time?

It is possible to complete an IVA early if you get a windfall of money which provides enough funds to pay off the outstanding amount left on your IVA.

It will be necessary for your Insolvency Practitioner to arrange another creditors meeting to seek their approval of your offer of a lump sum early settlement which will lead to the early completion of the arrangement.  Most creditors would agree to this proposition as they will be benefiting from getting paid much sooner than under the original terms of the agreement.

I am on Income Support - do I qualify for an IVA?

No. You should consider either bankruptcy or an informal repayment plan.

I am professionally qualified. If I enter into an IVA what will happen to my accreditation?

In the first instance, it would be wise to check with the professional organisation of which you are a member to see if undertaking an IVA will impact on your accreditation.

In certain jobs, undertaking an IVA can be contrary to the terms and conditions in your employment contract so you should check this to see if you would be affected.

Advice for Residents of Scotland

A Trust Deed is the Scottish equivalent of an IVA in that it is a formal, legally binding agreement between an individual who is unable to pay his/her creditors and a licensed Insolvency Practitioner (the Trustee). The Trustee prepares a form of proposals to the creditors for their approval and administers the Trust Deed. A Trust Deed is a form of informal bankruptcy but it is still regulated by The Bankruptcy (Scotland) Act 1985.

The Trust Deed may be registered as "protected", provided certain specific conditions are met, which prevents creditors from taking further action such as sequestration (bankruptcy) to recover outstanding balances due to them.

Trust deeds take the pressure off you as all further correspondence and queries from creditors are handled by the Trustee. The debtor is in control of their own financial situation instead of the creditors.

A Trust Deed is more flexible and costs less to administer than sequestration. The debtor may also continue to hold certain public offices. This is not the case with sequestration. Companies may continue to trade and individuals can continue as directors.

Individual Voluntary Arrangements

Call us on 0800 88 18 274 to find out how we can help at the Debt Helpline