Michael Agboh-Davison, debt advice co-ordinator at StepChange Debt Charity explains how an Individual Voluntary Agreement could help if you're struggling to repay money
What is an IVA?
An Individual Voluntary Agreement (IVA) is a debt repayment plan available in England, Wales or Northern Ireland, which allows you to pay off your debts at an affordable rate, usually over a 5-year period. Creditors are not able to pursue you for your debts during this time, and any outstanding unsecured debt will be written off at the end of the IVA.
How does it work?
You will work with an Insolvency Practitioner (such as StepChange Voluntary Agreements) to go through your budget and draw up an affordable repayment proposal, which will then be sent to your creditors. A meeting of your creditors will take place, where they will all get a chance to vote on whether they are prepared to accept the offer. Creditors holding over 75% of your debt must agree for the IVA to go forward. If it does, then it is a legally binding agreement which both sides have to adhere to. You’ll have to stick to a budget during your IVA, and you must let your IVA Supervisor know if your income or living costs go up or down.
Is it the right thing for me?
To be eligible for an IVA, you need to have a regular, sustainable source of income, and be able to pay some but not all of the money your creditors are demanding. If you’re a homeowner, then you should be able to keep your property as long as you maintain your mortgage payments throughout the agreement. But, before deciding anything, it’s always best to get free expert debt advice from an organisation like StepChange Debt Charity (0800 138 1111), to make sure you’ve considered all your options.
Things to keep in mind
- Fees - there are two separate fees to pay for an IVA – a nominee fee (for setting up your IVA) and a supervisor fee (for managing the IVA over the term of the agreement). These will vary according to your agreement, but you should always be made aware of what they are and how you will have to pay them.
- As a very broad rule, the first five payments of the IVA go to paying the nominee fee, and then going forward your monthly payments are split 85% for the creditors and 15% for the supervisor fee. So the person going through the IVA isn’t affected too much by the fees, as they’re incorporated into the plan. With StepChange, there are no fees for the advice – it charges fees once the IVA is approved – and it’s important to stress that nobody should pay for initial debt advice.
- Equity – If you have equity in your house, then you may be asked to re-mortgage to release the equity in the final few months of your plan, and this may be at a higher rate of interest than your current mortgage. If a re-mortgage isn’t possible, you may have to make 12 extra monthly repayments to your IVA instead, taking the length of the plan to 6 years.
- Insolvency – It’s important to remember that an IVA is a form of insolvency, and will be recorded on a public register. There are certain instances where this may affect your employment, for example if you work in law, property, accountancy or banking. The best way to be certain of what it would mean for you is to check your employment contract, or speak confidentially to your union representative or HR department.
- Credit rating – An IVA will also be recorded on your credit file for six years from the date it’s approved. You’ll find it much harder to get credit for this time.
- If it fails – Circumstances can change radically over a five or six-year period, so be as sure as you can be that you’ll be able to afford your repayment plan in the long term. If an IVA fails for any reason, then creditors could potentially make you bankrupt.
- For more information - read this guide to IVAs.