If you’re struggling with unmanageable debt and can’t see a way of ever paying it back, one option is an IVA (Individual Voluntary Arrangement). It’s a legally-binding debt solution in which you’ll repay as much of your unsecured debt as you can afford over an agreed period of time, after which the rest of your debt will be written off.
How an IVA works
Step 1: talking to your IP
Before you can enter into an IVA, you’ll need to discuss your situation with an Insolvency Practitioner, or IP. This is the person who arranges and manages your IVA, and as such they’ll need to take some details from you, such as how much debt you’re in, how much you owe to each lender and how much you can afford to pay.
Based on this information, your IP can tell you whether an IVA is likely to be right for your circumstances. If it’s not, they may refer you to another debt adviser who can talk you through more appropriate debt solutions. If it looks like an IVA is the best solution to your debt problems, they’ll work with you to draw up an IVA proposal.
Step 2: the IVA proposal
The IVA proposal is a document that ‘sets out your case’ for entering into an IVA. It will include details about you, your debts and your income, demonstrating why you can’t afford to repay your debts. It will then tell your lenders how much you can afford to pay, and over what period of time you plan to pay (this is usually five years, but it can vary if you have a reason for a different repayment period).
Step 3: the creditors’ meeting
Your lenders will be given a minimum of 14 days to consider the IVA proposal, and will have the opportunity to vote for or against the terms. At the end of this period, the ‘creditors’ meeting’ will take place: in reality, not so much a meeting as a period of time in which you and your IP will make yourselves available – over the phone – to discuss any questions or suggestions your lenders have regarding the proposal.
In all, 75% of voting lenders (by debt value) must approve the proposal for the IVA to go ahead. If this happens, your other unsecured lenders will be automatically bound by the terms, and your IVA will begin.
Step 4: the IVA begins
Once your IVA starts, you’ll make regular monthly payments to your IP (unless you’ve agreed a different repayment plan). Your IP will distribute the agreed amounts between your lenders.
There will often be other terms involved: for example, you’ll be required to declare any increase in income during the IVA, and in most cases you’ll put a portion of this towards your debts. If you’re a homeowner, you may be expected to release some of the equity in your home in the final year of the IVA.
Step 5: the IVA completes
On successful completion of the agreed terms, your IVA will complete and you’ll be legally debt free.
However, remember that your IVA will remain on your credit history for six years from the time it began, and you’ll find it more difficult to borrow more money in this time.
