Is An IVA Worth It? And WIll It Get Me Out Of Debt?

Individual Voluntary Arrangements (IVAs) help thousands of people out of debt every year. Yet they’re not right for everyone. So is an IVA worth it for you?

Insolvency isn’t an easy thing to go through and an IVA (or a protected trust deed in Scotland) isn’t the right way for everyone to do it. You don’t have to look too far for evidence of that: around 20% of all IVAs fail in their first 3 years. Yet the same figures show thousands (and sometimes tens of thousands) of people escape debt with an IVA every year. Most of those people would surely say their IVA was worth it. But what about yours?

In this guide, we look at the issues that will influence whether an IVA is right for you.

How much do you owe?

Despite the figures you’ll see quoted on lots of IVA companies’ websites, there is no strict minimum amount of debt that can be included in an IVA. It really could be any amount BUT an IVA does have costs associated with it and these can be quite high.

So it’s important to ensure that the amount of debt warrants the cost of setting the IVA up in the first place. As a general rule, if you have £5,000 of debt the IVA is likely to be worthwhile. If the amount is lower, it may not be worth it and an alternative debt management solution may be better for you.

Do you have money due?

In general, an IVA lasts for a minimum of five years. It’s certainly not a short term solution. If you have significant debts now but expect to be able to repay them soon because you have money due (e.g. inheritance, or back pay of child maintenance or benefits) an IVA probably won’t be worth it.

That’s because the costs of an IVA will be rolled up with the rest of your debt when you agree to take it out. If you receive enough money to settle your debt early, you’ll then have to pay the costs of the IVA on top of the debt. Charges vary depending on your circumstances, but be sure to check with your insolvency practioner first.

If you’re facing short term debt and need help until your money arrives, talk to us about a more appropriate solution.

What types of debt can you include in an IVA?

An IVA can be a very effective solution for unsecured debts such as:

• Overdrafts
• Credit cards
• Personal loans
• Payday loans
• Catalogue debts
• Pay later debt
• Store cards
• Income tax and National Insurance arrears
• Council Tax arrears
• Utility arrears (gas, electric, water)
• Benefit overpayments
• Other outstanding debts, for example to family and friends, vets, tradesman, solicitors etc

But IVAs aren’t the right solution for several other forms of debt.

An IVA may not be worth it if your debts are secured (that is, the sort of debts that mean you may lose your home if you don’t keep up payments). A mortgage is the most obvious example of a secured loan but you can get secured personal loans, credit cards and more.

Whilst technically there’s nothing to stop the IVA including a secured loan, creditors rarely agree to it.

Additionally, some debts cannot be included in an IVA. These include:

• Court fines
• Student loans
• Child support arrears
• Maintenance arrears ordered by a court

If all or most of your debts are secured or cannot be included, it’s unlikely to be worth applying for an IVA.

Your income

An IVA helps you escape debt by paying back a proportion of the money you owe, usually over 5 years. Whilst the proportion you pay back is likely to be much less than the amount you owe, you will still need to meet your monthly repayments.

If you don’t have a regular income, there may be ways of increasing your income or lowering your monthly IVA repayments. You can find out more about how to afford your IVA here.

If you have no income, however, an IVA may not be the right option for you.

The IVA alternatives

An IVA isn’t the only route out of unmanageable debt. There are several others, ranging from a Debt Arrangement Scheme to bankruptcy (or sequestration in Scotland).

There is no standard answer for which route is right for you. It’s different for every person and depends on the level and type of debt, your income and your personal circumstances.

To explore all of your options, talk to us.

Is An IVA worth it for your wellbeing?

We know that debt and debt worries can trigger stress, depression and anxiety. We also know it can increase blood pressure, leading to an increased risk of stroke. But debt can have an even wider impact, affecting people other than you.

As The Children’s Society notes: “Children living in families struggling with debt are five times more likely to be unhappy than children in families who don’t have difficulty with debt.”

So in terms of impact on your life, whether it’s an IVA or another form of debt relief, escaping debt is definitely worth it.

Even putting plans in place to manage your debt can have a positive effect. You only need to look at our testimonials to see the relief you can get from talking about, rather than worrying about, debt.

Is a Scottish Trust Deed worth it?

In Scotland, you can’t apply for an IVA, but you can apply for a Scottish trust deed (also known as a protected trust deed). It operates in much the same way as an IVA although there are numerous differences between the two.

The cost of a protected trust deed is typically lower for than for an IVA. The duration is usually shorter and the amount of debt required before the trust deed becomes a worthwhile option is less. So even if you believe an IVA may not be worth it, if you live in Scotland, a Scottish trust deed just might be.

The best way to find out for sure is to contact us.