An IVA isn’t free. Although you can roll up all costs in your monthly payments, it’s important to know what you’re paying for – and to look out for unnecessary charges.
Do you have to pay for an IVA?
Yes. By law you can’t set up an IVA on your own. You have to do it via a professional known as an insolvency practitioner (IP) and you’ll need to pay them for their services.
There’s no set fee for an IVA but costs tend to average about £5,000. There are additional fees if your IVA fails and the IP has to launch bankruptcy proceedings. Some providers also charge various set-up fees. We explore these below.
Do I have to pay the IVA fee up front?
Absolutely not. Given that the very reason IVAs exist is to support people who are struggling to manage debt, it would be unreasonable to expect you to suddenly find an additional £5,000. You’ll pay the fee back in instalments which will be included in your monthly payment figure.
That said, you may come across IVA providers who do charge certain upfront setup fees, booking fees or similar. They may even tell you that such fees are standard practice. They are not and you should avoid any IPs charging them.
What do IVA fees cover?
There are three parts to an IVA fee:
- The advice your IP offers before you set up the IVA
- The process of setting up your IVA, which will involve the IP making an application to the court and negotiating with your creditors (the people to whom you owe money) and getting a sufficient majority of them to agree to it
- Supervising the ongoing IVA to ensure you keep making your monthly payments and the creditors keep receiving their share. The IP will also be your first point of contact should your circumstances change
Your IPA will also need to pay a registration fee to register the IVA with the Insolvency Service. They’ll need to hold insurance to protect the money you pay towards your IVA and, if there are additional legal costs, your IP will need to pay those too. These costs are known as disbursements and your fee will also go towards these.
Does it matter what I pay for my IVA?
In one sense, the practical effect of a lower cost IVA over a more expensive one is limited. Your insolvency practitioner sets a monthly payment you can afford but that figure doesn’t alter depending on the IP’s fee. Whether your IVA costs are £6,000 or £4,000 the payments will be the same. All that will change is the way the money you pay each month is split between your creditors and your IVA, and your IP will handle this for you.
If your IVA fails, however, your costs will not be refunded. So whilst shopping around for a lower cost IVA provider may make little practical difference in most cases, it could reduce your liability if the IVA were to fail.
How long does it take to set up an IVA?
Usually between 4-8 weeks, with complex financial arrangements taking the longest time to set up.
Can I set up an IVA in Scotland?
IVAs are a common debt management tool in England, Wales and Northern Ireland, but Scotland operates a different system. Here, protected trust deeds (aka Scottish trust deeds) operate in a similar way, although there are some key differences.
Crucially, Scottish trust deeds tend to cost less than IVAs although, like IVAs, they do vary. Trust deeds should also have no upfront setup costs, although you may find some providers charging a wide range of additional and unnecessary fees. Find out more about the trust deed setup fees you shouldn’t pay here.
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.
- 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