What is an IVA and how does it work?- My Debt Plan

What is an IVA and how does it work?

What is an IVA?

IVA is short for Individual Voluntary Arrangement and is one way that you can manage a debt that you’re struggling to repay and avoid falling further behind with payments. Available in England, Wales, and Northern Ireland, individual voluntary arrangements allow you to make regular payments to cover all or part of your debts. Typically, these are made monthly for between five and six years and are based on the amount you can reasonably afford to pay without cutting back in other areas like groceries, hobbies, etc. Not only can an IVA help you manage your debt, but they can also offer more control than bankruptcy and allow you to continue running a business if you own one. And, once you’ve entered one, an IVA will legally protect you from being pursued by your creditors.

Am I eligible for an IVA?

Not everyone is eligible to enter an IVA. You’ll usually need to have at least three different creditors and a large amount of debt, but also show that you have a long-term source of income that allows you to pay something back each month. Individual voluntary arrangements can only be used to help pay for certain types of debt. These include overdrafts, personal loans, Council Tax arrears, hire purchase arrears, credit and store cards, mortgage shortfalls, and any money owed to HMRC.

How does an IVA work?

If you’re looking for IVA advice or to set up an arrangement, you’ll first need to find an insolvency practitioner. These are qualified professionals – often lawyers or accountants – that act as a go-between for you and your creditors. It’s their job to work out exactly what you can afford to repay towards your debt and how long the IVA should last. That means that you’ll have to share details of your financial situation with them including your assets, income, and list of creditors, so it’s important that you find an insolvency practitioner you can trust. Some practitioners work independently while others provide IVA debt help through a debt management company. Your insolvency practitioner will contact your creditors on your behalf. The creditors holding 74% of your total debt will have to agree to the IVA and, if they do, it will apply to everyone you owe. Individual voluntary arrangements are formal, legally binding, and approved by the court. Once up and running, you’ll make each payment to your insolvency practitioner, and they’ll divide the money between your creditors.

How much does an IVA cost?

There are fees involved to get IVA debt help from an insolvency practitioner and it can be a more expensive solution than other debt management options. Expect to pay an initial set-up fee as well as handling fee each time you make a payment. These fees can be based on your total debt but it’s always worth getting costs upfront, so you won’t be blindsided later. Even so, the good news is that you probably won’t notice them once your IVA is up and running as they will be taken from your affordable monthly repayment.

What happens after an IVA ends?

Your IVA will be added to the Individual Insolvency Register but this will be removed three months after the agreement ends. Even so, it will remain on your credit report for six years and may impact your chances of securing future loans. If you reach the end of the individual voluntary arrangement and have kept up with your repayments throughout then, even if you haven’t covered the original debt in full, you won’t have to pay any more unless you get a windfall. In that case, this additional money can be taken to pay your creditors, even if the IVA is over. It’s also worth bearing in mind that the IVA can be cancelled by your insolvency practitioner if you don’t make all the payments, and this can lead to bankruptcy.

A typical example of an IVA

The important point to note about the fees and costs of an IVA is that the costs are deducted from your agreed affordable monthly payments.

What fees are involved in an IVA?

All fees paid are charged from the monthly contributions you make into the IVA and are not in addition.

Costs will only be recovered on approval of your arrangement and once you commence making payments to it.

The fees involved are:

Nominee’s fees:

This fee covers the preparation of the proposal to the creditors and calling the meeting for creditors to vote the approval of an IVA case.
At My Debt Plan we charge a fixed Nominee’s fee of £1750.

Supervisor’s fees:

- These are the fees that cover the administration work involved to keep the arrangement running once the IVA is approved. It will cover things such as the registration fee, statutory insurance, disbursements and annual reviews of your IVA.
- At My Debt Plan we charge a fixed Supervisor’s fee of £1,900 regardless of the amount of your monthly contribution.

We will charge an additional 15% on any other asset realisations that may come into your arrangement, for example, windfalls or compensation for miss-selling claims.

For an IVA arrangement with My Debt Plan, the total of all of these fees is £3,650 although this may be adjusted by creditors when they vote on whether to accept. No matter what the end total of costs come to, you can be rest assured that these will be taken from the monthly payment we agree with you, and you won’t notice these fees being taken at all.

IVA Fees explained

If your IVA is terminated because e.g. you have failed to pay all the agreed IVA payments, it is likely that the majority of the contributions you have paid will have been used to pay the costs and expenses of your IVA. This will mean that the amounts you owe to your creditors will have reduced by very little. Your creditors will again be able to claim the amounts you owe to them together with interest and charges

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