For some people the IVA debt solution is the perfect route to become debt free, repay a proportion of the debt borrowed and start again financially. As a registered debt charity, Debt Support Trust can help you decide whether an IVA is the right solution for you. The charity provides a full range of debt solutions and can help you understand the pros and cons of the IVA for your specific situation or explain other debt plans which would be more suited to your situation.
You can call Debt Support Trust on 0800 085 0226 or complete an online enquiry form to receive a call back.
Debt Help: Individual Voluntary Arrangement
The IVA is just one of many debt solutions which could help you resolve unsecured debt problems. These debts include credit cards, overdrafts, personal loans, payday loans and other debts which are not secured. Most student loans and any secured loans (e.g. mortgages) will still have to be repaid separately to the IVA.
If you have a car which is on finance then it would depend if the car is hire purchase or the loan is unsecured as to whether this debt could be included.
In an IVA you would continue to pay the essential expenditure from your income each month. This includes your rent or mortgage, council tax, water rates, gas, electricity, telephone bills, transport costs, insurances, clothing and anything else which is vital to help you live month to month. Basically, you pay everything except for your unsecured credit agreements. Once you’ve paid your monthly expenditure, whatever you have left is offered to the creditors and is known as the disposable income.
The IVA lasts, usually, for 5 years. You stop paying your debts and only pay one monthly payment to one company for the IVA. At the end of the solution whatever is not repaid is written off.
Criteria For An IVA
If anybody is interested in entering an IVA they must meet the criteria. This is set to ensure it represents best advice for you.
- The debt level should be £7,000 or more
- The disposable income each month must be at least £100 but is usually closer to £250
- You should be in employment or receiving an income which is not based on solely state benefits
- You should not repay more than the unsecured debt in the IVA (a debt management plan would be a better solution for you)
If you’re unsure about entering an IVA speaking to Debt Support Trust on 0800 085 0226 first.
There are some negatives to entering an IVA too. It’s important to know the pros and cons of the IVA so as you’re fully aware.
- No savings account: you cannot be seen to save money in the debt solution. If you have extra money then your payments should increase monthly
- Bonus: If you come into a bonus from work you will have to offer 50% of this money towards the solution.
- Credit file: Your credit file will be impacted with a default lasting 6 years.
- Inheritance: If you can afford to repay all of your debt then you will be asked to do this in the IVA. This would mean paying any IVA fees, if you had the affordability.
- PPI: During the solution the PPI will be reviewed to assess if there is any money which can go to the creditors.
- House: In the IVA your house is generally secure however you could be asked to remortgage to release any equity near the end of the solution. If you can’t get a remortgage then the debt solution would last for an extra year.
IVA Fees for the Company
In an IVA you may hear that you don’t have to pay the fees. This is not strictly correct. If you are able to repay all of the debt (because of a lottery win or you come into inheritance) then you could be asked for the IVA company fees too.
Usually a person only repays a percentage of the debt they owe and from this money a percentage is paid to the IVA company. For example,
Your debt is = £25,000
Your disposable income = £250 per month
Repay over 5 years = £15,000
Debt written off = £10,000
Out of the £15,000 you will repay of 5 years your IVA company will take a percentage of the money to cover their fees. This is usually around £4,000 for the term of the IVA. This means only £11,000 will go back to your creditors. If you inherited £15,000 during the IVA then you would be asked to complete the IVA and you would repay £29,000 (the total debt plus the IVA fees). The remaining money would be returned to you.