An IVA debt solution is an option to resolve unsecured personal debts which have become too expensive to manage. The fixed term IVA solution usually lasts for 5-6 years, at the end of which time, any remaining debt, interest and charges would be written off.
The IVA solution is designed for a person to pay what they can reasonably afford for a fixed period of time. The IVA debt plan protects you from creditors and allows you to pay an affordable payment towards all your debts.
IVA Debt Advice
Over 40,000 people enter an IVA every year in England, Wales and Northern Ireland to resolve personal debt problems. The IVA gives people the security from creditors and allows them a way to repay a proportion of the debt in an IVA debt plan and become debt free at the end.
The IVA solution requires a proposal to be sent to your creditors, which if 75% agree with, will proceed. At Debt Support Trust, if we recommend an IVA it’s very unusual for the debt solution to be rejected by the creditors. If the IVA debt plan is agreed then you would stop all payments to your unsecured debts (personal loans, overdrafts and credit cards) and make one monthly payment to your IVA company.
IVA Debts Written Off
One of the main benefits of the IVA is that debt can be written off at the end of the solution. This would include writing off interest and charges. This is one benefit of the IVA, other would include,
- It protects you from your creditors so they can’t demand payment or try and take legal action against you.
- It’s one affordable payment, meaning you won’t be asked to pay anything excessive each month.
- You are likely to be able to keep your home within an IVA, usually the Insolvency Practitioner will only be interested in any equity.
There are negatives of entering this debt solution. Some of the negatives include;
- Your credit file will be impaired for at last 6 years when entering this debt solution.
- If you owe money to the bank you regularly bank with for your current account then you would have to change banks.
- If your IVA fails then you may face bankruptcy and until you enter this solution interest and charges will be accrued on all debts.
Entering an IVA Debt Plan
To enter an IVA debt plan it’s important to get debt advice beforehand. A debt advice charity which provides a range of debt solutions will be able to give you every option, along with the positive and negatives, so you can make an informed choice on your financial future.
You can get help with debt advice and an IVA debt plan via Debt Support Trust advisors on 0800 085 0226.
IVA Example with Fees
In order to enter an IVA debt solution, an insolvency practitioner is required. The Insolvency practitioner is responsible for proposing and managing the IVA. All insolvency practitioners take their fees out of the monthly payments.
There are two fees attached to this debt solution. These fees would be agreed in advance with you and your creditors. The fees cover the work the insolvency practitioner has to do in order to manage the IVA process. The fees are taken from your monthly contribution. Most IVA companies will no longer ask you for money in advance to manage your IVA, however it’s always best to check. There are some companies that place people into a 6 month debt management plan ahead of entering an IVA, which is not necessary.
Fees for IVA: Nominee and Supervisory
The process for nominating a person for an IVA can be an expensive one. It’s for this reason that a large percentage of the money and IVA company will receive is at the nominee stage. The paperwork and proposal creation can take weeks of work. The fee an IVA practitioner will receive would depend upon the cost of creating the document, but is usually a minimum of £1,000.
The supervisory fee is a payment for managing the ongoing costs of the solution. For the IVA to be accepted by creditors 75% must accept the proposal. A standard IVA, with fees would be,
Unsecured debt (credit cards etc) : £30,000
Disposable Income: £250 per month
- Nominee fee – £1,250
- Supervisor fee (over 60 months) – £2,250
- Plus expenses and VAT – £1,100
- Total paid by individual – £15,000
- Net paid to creditors – £10,400 (35%)
- Amount written off at the end of the IVA – £15,000 (50%)
In the example above, a person entering a 5 year IVA would repay £15,000 towards a £30,000 unsecured debt. From the £15,000, the IVA company would take their fees and charges equating to £4,600. The remainder of the money £10,400 is passed to the creditors on a pro-rata basis. At the end of the IVA the remaining £15,000 is written off.