Individual Voluntary Arrangement
Which debts can you pay off with an IVA?
You can use an IVA to help pay off many common debts, including (but not exclusively):
- personal loans
- catalogue debts
- Council Tax arrears
- hire purchase debts
- mortgage shortfalls
- credit and store cards
- money you owe to HMRC, such as Income Tax or National Insurance contributions.
Which debts can’t you pay off with an IVA?
You can’t use an IVA to pay off:
- student loans
- magistrates’ court fines
- certain types of car finance
- Child maintenance or Child Support arrears
- Social Fund loans
- TV Licence arrears.
Mortgage and rent arrears
If you include mortgage and rent arrears, and other secured loans against your property, in an IVA, your creditors have to agree to this. Often, they won’t agree to do so.
Check with a debt adviser what you can and can’t include in an IVA. If you have mortgage or rent arrears, see if there are other debt solutions available to you to deal with these repayments.
How an IVA works
An Individual Voluntary Arrangement (IVA) freezes your debts and allows you to pay them back over a set period.
Any money you still owe after this period is then written off.
You can apply for an IVA if you can afford to pay something towards your debts but not necessarily the full amount your creditors want. Typically, this is around £70 a month after you’ve taken care of essential costs, but will vary between IVA providers.
You’ll need to show you have a regular long-term income, as the repayments will usually cover a period over 60 or 72 months (five to six years).
If you have a lump sum to pay towards your debts, you might also qualify for an IVA.
if you’re a homeowner, in the second to last year of the IVA, you might be asked to re-mortgage your house and use the extra funds towards repayment. If you do this, the IVA term would then finish a year early or after you’ve re-mortgaged.
The IVA is set up by a qualified professional called an Insolvency Practitioner. They’ll work with you to put together a proposal to take to your creditors for approval.
It very much depends on what your circumstances are as to whether your creditors will agree to the plan. But if at least 75% of your creditors agree to the proposal, an IVA is likely to be approved – even if some creditors disagree.
An IVA is a legally binding agreement between you and the people you owe money to. This means when you’ve signed it, it can be difficult for you or your creditors to back out. And if you do back out, there are likely to be hefty penalties.
How to set up an IVA
You have to set up an IVA through an insolvency practitioner.
There might also be up-front charges to pay before your IVA has been set up. These can differ a lot between IVA providers. You’ll also pay a monthly payment to oversee the IVA.
There are also fees to pay to the insolvency practitioner, which are usually taken from your monthly payments.
It’s always best to get advice from a free debt advice service. They should also be able to recommend an IVA provider for you and help you understand the different fees and charges if you want to choose one yourself.
What if you can’t keep up with payments into an IVA?
If you can’t keep up with payments, the insolvency practitioner can cancel your IVA and apply to make you bankrupt. It’s important to be aware, however, that not all cancelled IVAs lead to bankruptcy – this is purely an option that individual creditors may consider if the IVA fails.
Get free advice about setting up an IVA
It’s always best to talk things through with an experienced debt adviser before you decide to take out an IVA.
This is because the debt solution that’s best for you depends on your personal circumstances and might not be this one.
Debt advisers can help you make the right decisions so most of your money will go to paying off your debts. This means you could be debt-free sooner than you thought.
A debt adviser will:
- treat everything you say in confidence
- never judge you or make you feel bad about your situation
- suggest ways of dealing with debts that you might not know about
- check you have applied for all the benefits and entitlements available to you
- always make sure you are comfortable with your decision.
Three quarters of people who get debt advice feel more in control of their finances afterwards.
You can find free, high-quality debt advice now using our debt advice locator tool.
This article is provided by the Money Advice Service.
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