An IVA Mythbuster (Individual Voluntary Arrangements) – Debt Advice

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.

Find out more about IVA costs

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.

The find the best route out of debt for you, contact us.