Are you burying your head in the sand about your debt problem? Is it making you stressed out and anxious? If you’re an NHS or public sector worker who’s struggling to get out of debt then an IVA could help you take back control.
An Individual Voluntary Arrangement (IVA) lets you pay off your debts over a fixed period of time. It can be a flexible way to clear your debts, but there are risks and it might not be suitable for you.
Here’s what you need to know about IVA debt and whether it’s worth it in your situation.
What is IVA debt?
An IVA is a formal agreement between you and your creditors and agreed by a court. Your debts will be grouped together and you agree to make regular payments towards them over a set period of time, usually five to six years.
Your creditors have to stick to the agreement, and you have to make regular repayments. This type of agreement could give you more control of your assets than bankruptcy.
How an IVA works
Your IVA will be set up by an insolvency practitioner (IP) who will handle your repayments and divide the money between your creditors.
Your insolvency practitioner will work out your repayment plan which should be based on the amount you can reasonably afford to repay. This could be a lump sum but is usually monthly repayments over five to six years. It’s important to remember that the IVA can only start if creditors holding 75% of your debt agree to it.
When you enter into an IVA you’ll be placed on the insolvency register. This records your name, date of birth, address and date you started the IVA. Your information will be removed from the insolvency register three months after the agreement ends.
The good news is that, once the IVA starts, your creditors can’t take any further action against you. And when you reach the end of the agreement, your creditors can’t ask you for any more money even if the debt isn’t fully repaid.
How much debt do you need for an IVA
There’s no set limit for the amount of debt you need for an IVA. But it’s worth bearing in mind that the fees are high - you’ll pay your IP a fee to set up the agreement and then a handling fee every time a payment is made.
To work out whether an IVA is right for you, find out the fees your IP will charge. You could find that if your debt is less than £10,000 then an IVA is not the right choice for you.
What is the difference between an IVA and a debt management plan
An IVA isn’t the only way to get on top of your debts. If you have a lower level of debt and disposable income, you could try a debt management plan (DMP).
This is set up in a similar way to an IVA. You’ll meet with a debt management advisor who will assess your levels of debt and monthly income, just like an insolvency practitioner. They’ll put together a repayment plan and get in touch with your creditors for approval.
But there are also some major differences between an IVA and a debt management plan.
An IVA is a legally binding agreement made through the court. A DMP is an informal agreement that you can set up yourself or through an advisor.
An IVA will last for a fixed amount of time, usually five to six years. A DMP will last until 100% of the debt is repaid.
Protection from creditors
Once an IVA comes into effect then your creditors can no longer contact you. A DMP does not stop your creditors from taking legal action against you at any time.
An IVA offers legal protection for your assets, including your home. A DMP is an informal agreement that could be ended by your creditors. They would then be able to seize your assets - including your home.
An IVA prevents you from taking out any other form of credit. With a DMP you could seek an additional loan but it’s advisable not to. Both an IVA and a DMP will have a negative impact on your credit score.
What debt can be included in IVA
You’ll find that most debts could be paid off through an IVA. These include credit cards, personal loans, Council Tax and utility arrears, payday loans and benefit overpayments. If you have joint debts you and the other person may have to take out individual IVAs.
Any number of debts can be included. In fact an IVA is usually more suitable if you have higher levels of debt from more than one creditor. You can try to include debts secured against your home like mortgages, rent arrears or secured debts, but it's unlikely that the creditor will give their approval.
The following debts can’t be included in your IVA:
- Student loans
- Child support and maintenance arrears
- Social Fund loans
- TV license arrears
- Magistrates Court fines
Is an IVA worth it?
Deciding on whether an IVA is right for you will depend on a number of factors, and we’ve put together some pointers on making good financial decisions. Let's start by looking at some of the benefits and risks of this form of debt management:
Benefits of an IVA
An IVA is legally binding so if you need to get your creditors off your back fast it could be a good fit for your situation.
You won’t have to pay off the full amount of your debt, and you’re protected against your creditors taking further action. Once the IVA has finished, your creditors can’t chase you for any unpaid debt.
Risks of an IVA
An IVA depends on your creditors agreeing to the proposals. Also, not all debt can be included in your IVA so you’ll need to deal with that separately. While the IVA is in place, your spending will be restricted and your name will appear on the insolvency register.
An IVA could be right for you if:
- You have a high level of debt
- You owe money to 2 or more creditors
- You can afford to make the monthly repayments
- You don’t want to deal with your creditors directly
- An IVA covers the debt you have
An IVA might not be right for you:
- You have a lower level of debt
- You don’t have a fixed income or permanent job and can’t make the repayments
- You receive support for mortgage interest (SMI) - you could have to pay back SMI received and your payments could stop
- You work in accountancy, law or financial services
- You owe money to people or businesses in the EU
If an IVA is right for you, you could be debt free in six years if you keep making regular payments. If you have a lower level of debt and don’t want to start a DMP, try applying for a Salad Money loan.
We offer fair and affordable lending to NHS and public sector workers to help you deal with everything from overlooked debt to those unexpected bills. Apply online today, and if you’re accepted the money will be in your account the next day. We’re here to help you take back financial control and stop living with unaffordable debt.