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:
- 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.
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.
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