There are loads of myths and half-facts surrounding Individual Voluntary Arrangements (IVAs). In this post, we take an unlucky 13 of the most common ones and get to the truth.
IVAs don’t work
IVAs don’t work for everyone, but they do work extremely well for many. As government data shows, around one third of IVAs fail. But that leaves two thirds that don’t. With around 70,000 IVAs registered in 2018, if two thirds of them are successfully completed that will be more than 46,000 people who escape problem debt with an IVA.
If you can get one, an IVA is always a good idea
Not true. An IVA may be a good idea but it is one of several possible debt management options and you should speak to an expert to find out which would work best for you.
You can apply for an IVA yourself
Not true. An IVA can only be arranged through an Insolvency Practitioner (IP). If you’re looking at a debt management solution that promises to help you escape debt and which you can arrange yourself, it isn’t an IVA.
You can only get an IVA if you have a certain amount of debt
Not true. But it is true that an IVA may not be worth it if you don’t have a certain amount of debt. Because of the charges associated with IVAs, other debt solutions may be better suited to your circumstances if your debt is below £10,000. To find out for sure, it’s important you speak to a debt expert.
You’ll have to sell your home
Not true, in fact very few people lose their home with an IVA. It is true to say that the value of your home will have an effect on your IVA though.
You may be required to remortgage your home, but getting any bank to agree to a remortgage for someone applying for an IVA is unlikely to be successful. So instead, If you have more than £5,000 of equity in your home, your IVA payments may be extended for an extra year, with the payments effectively taking the place of the money you might have raised from remortgaging.
Find out more about how an IVA affects your home
IVAs are free
Not true. All IVAs are set up and managed by professionals, all of whom expect to be paid. In addition there are fees for registering your IVA and other legal costs. Average costs tend to be about £5,000 but these vary from IP to IP, so it’s worth doing some research and not agreeing to work with the first IP you meet. Your IP fees will be included in your single monthly repayment – you won’t have to pay them separately.
No one will find out about your IVA
Although this is likely to be the case, it can’t be guaranteed. It’s certainly true that nobody is told about your IVA. No official letter or email is sent to your employer, landlord, family or anyone else telling them about your IVA. Nothing is published in any local or national newspaper.
Because an IVA is a form of personal insolvency, however, your name will be recorded in the Individual Insolvency Register. This is a public register which means anyone could see it, but it’s important to remember the Register is not a big list of names that anyone could scroll down and stumble upon your name by accident. You can only search by a specific name, so to find you a person would need to be actively looking for information about you.
You have to tell your employer about your IVA
Not true unless your contract requires it. Some professions have strict rules about insolvency. If you work as a financial advisor, a solicitor, an accountant or similar, your contract may require you to declare insolvency. If your contract doesn’t mention insolvency, you don’t have to declare it.
NOTE: An IVA is a type of insolvency but it is not bankruptcy. If there’s a clause in your contract saying you must declare bankruptcy, you don’t have to declare an IVA.
An IVA will leave you nothing to live on
Not true. In fact, it’s almost the exact opposite of the truth. Your IVA won’t be agreed if you can’t afford your monthly repayments, so it is in your IP’s (and your creditors’) interests to ensure you have enough to live on so that you don’t have to use your IVA repayment money to pay for food, heating etc. That’s not to say you’ll have lots of money swilling around – living with an IVA isn’t easy – but most people say they can manage. We’ve heard it described as “not a holiday, but not a prison sentence either.”
You can’t change an IVA
Not true. Flexibility is built into an IVA, so if your circumstances change your IVA could be extended, and/or your payments could be raised/lowered. You must tell your IP about any change of circumstances.
You can’t get credit with an IVA (and you’ll never get a mortgage)
Not true. Even while you have an IVA you can take up to £500 of credit without your IP’s approval, although it is fair to say that:
- If you’re in an IVA, you should probably try to avoid using credit; and
- Credit – and especially cheap credit – is harder to get
You need your IP’s approval to get credit above £500 and, generally speaking, they’re unlikely to agree to this on the basis that if you can afford new credit payments you can afford to up your IVA repayments.
These circumstances won’t last forever though. Your IVA will stay on your credit report for six years from the date it was approved. Once it has disappeared, although you won’t suddenly be able to take advantage of lots of cheap credit, you will be able to start rebuilding your credit score. The higher your score, the more lenders will say ‘yes’ to you, and the cheaper credit will be. And that includes mortgages.
If your IVA fails you will go bankrupt
Not necessarily true. Bankruptcy may be the next step if your IVA is refused or it fails, but it is not automatic.
I can get an IVA in Scotland
Not true. You can, however, get a Scottish Trust Deed which does a similar job, although there are some significant differences. Scottish trust deeds are informally known by several names – trust deeds, protected trust deeds and even Scottish IVAs – but they are not IVAs.
Are IVA’s a government backed scheme?
IVA’s were introduced in 1986 and form part of the Insolvency Act (1986) to help people who are struggling to pay their debts. Unlike debt management, they are a legislated and formal debt solution meaning that the IVA agreement is legally binding, which can help to eliminate harassment from creditors.
Will I lose my home in an IVA?
Unlike bankruptcy, you wouldn’t usually lose your home in an IVA. If you own your home and have equity you may be required to release it so the IVA company can pay your creditors (that is, the people and organisations to whom you owe money). Read more here.
Will an IVA affect my credit rating?
Your credit rating will be affected whilst on an IVA and will stay on your credit file for up to 6 years. Any debt solution will affect your credit rating, but at the same time if you’ve missed payments and defaulted then your credit file will be affected anyway, as a default also stays on your file for up to 6 years. Read more here.
Do I need to know who I owe before I apply for an IVA?
It’s not a problem if you cannot remember all the people you owe money to before you apply for an IVA. A lot of people forget as they may have been taken out a long time ago. We have systems which can find all your debtors.
How much debt can I write off with an IVA?
The amount of debt that can be written off with an IVA very much depends on personal circumstances, such as your current employment status, debt level and disposable income. The maximum is 90% of unsecured debt but the average is around 60%.
How can I apply for an IVA?
There are 4 ways to apply for an IVA. 1: Call us on 0800 193 1024. 2: Apply online here. 3: Chat with us on live chat. 4: Apply through our Facebook page. The IVA application process is very simple and can be setup in as little as 24 hours. The speed usually depends on how quickly you can get information to us.
I’m thinking about an IVA. But what happens if I have no money spare at the end of the month?
It’s still worth exploring options with a debt management professional. They may be able to help you make your budget stretch further. If not, they will be able to give you advice about which is the right debt solution tool for you. That could be an IVA (in England, Wales or NI) or a protected trust deed (in Scotland) but there are several other potential options.
What happens if my circumstances change?
Talk to your IVA insolvency practitioner. They may be able to get agreement from creditors to a temporary reduction in payments or a longer repayment period to help you over a difficult period.
Why is my bank taking money from my account to pay my debts?
Banks hold an automatic ‘right to offset’. This means that if you have money in a bank account and unpaid loans or credit cards with the same lender, they can take the money in the account to pay off the debts. More confusingly, this can also happen when the debt is owed to a company also owned by your bank.
So, for example, if your bank account is with HSBC and you have an unpaid credit card with M&S Bank or First Direct, a right to offset could be used to pay those debts, because HSBC owns all of them.
You can find more about which banks are subsidiaries of other banks here.
In an IVA, and to avoid the right to offset, you may be required to switch bank accounts.
Will an IVA affect my credit rating?
Yes. The record of the IVA will remain on your credit file for six years from the date the IVA begins.
Will I still be able to get credit with an IVA?
Getting credit is harder with an IVA. If you want more than £500 of credit you’ll need permission from your insolvency practitioner in most circumstances. The chances of credit being approved are less, and any credit you are able to secure is likely to cost more.
Bear in mind, however, that an IVA (and a Scottish trust deed) is designed to help you escape debt, not find new sources of it.
If I choose an IVA, do I have to deal with my creditors directly?
No. In fact, you can’t set up an IVA without an insolvency practitioner who will handle all the to-ing and fro-ing between creditors. Assuming you qualify in other ways (see above) that makes an IVA ideal if you’d rather not speak to your creditors.
The find the best route out of debt for you, contact us.
- Apply For An IVA
- Is An IVA Worth It?
- Are IVAs a Government Scheme?
- What If I Can’t Pay My IVA?
- Can I Get An IVA If I’m Self Employed?
- Rebuilding My Credit Rating After An IVA
- IVAs: What Will I Need To Show My Insolvency Practitioner?
- Who’s Most Likely to Need an IVA?
- How Much Does An IVA Cost?
- Can I Afford An IVA?
- IVAs – Can I Lose My Home?
- IVA And Trust Deeds | Whats The Difference?
- How Will My IVA Affect My Parents?
- An IVA Mythbuster
- Can An IVA Be Rejected?
Trust Deed Example
Example Unsecured Debts
|2||Credit card 1||£6,812|
Your Monthly Repayments Would Be
a Scottish Trust Deed £748
(total contractual repayments)
a Scottish Trust Deed £295
(total contractual repayments)
* Subject to creditor acceptance
* Payment subject to individual circumstances
* Credit rating may be affected
* Fees apply, subject to individual's circumstances. For more information on our fees click here