If you’re struggling with problem debt and are considering entering into a debt solution, you will likely have come across an IVA as a possible option. If so, you’ll probably have some questions about what an IVA is, how it works, and if it’s right for you. The experts at Debt Movement answer all your IVA-related questions in this post.
An Individual Voluntary Arrangement (IVA) is a legally binding agreement between you and your creditors. Its purpose is to help you pay back your debts over time. An IVA is usually in place for five years, but it can be extended for an additional 12 months if you have equity in your property or following a requirement from your creditors at the very start.
If you are struggling to pay your debts, an IVA might be the right choice for you. It will allow you to make affordable monthly payments over several years, and at the end of the period, any remaining unsecured debts included in the IVA are written off.
Here are some common frequently asked questions about IVAs, and their answers.
1. How Does an IVA Affect Your Credit Rating?
If you enter into an IVA, it will affect your credit rating because it will be logged on your credit file. The details of your IVA will be kept on the Individual Insolvency Register, which is a public record, and will remain there for the duration of your IVA. Three months after the end of your IVA, these details will be removed.
Entering into an IVA will likely make getting credit more difficult, especially in the short term. You may still be able to secure some personal or business loans, but you will probably be charged higher interest rates. Also, if you want to take out credit of £500 or more, you must get written permission from your Insolvency Practitioner first.
We don’t recommend trying to take out any more debt during the course of your IVA if you can avoid it. This is an opportunity to become financially free — make the most of it.
It’s important to remember that the dip in your credit rating from having an IVA is not permanent, although it will take time to repair.
2. Is My Home at Risk if I Get an IVA?
The value of your home, if you own it, will be considered an asset of your IVA. In the final year of your IVA, you will need to get a valuation of your home to show how much equity you have. If your equity exceeds £5,000, you will likely have to remortgage your home to release the equity and put it into your IVA. You would not need to sell your home to do this, so your home would not be at risk.
Most IVAs place a limit on how much you are expected to raise through remortgaging. The limit will depend on the property value and the current amount of your mortgage. If you are unable to remortgage, and you do have equity in your property, you may need to extend your payments for a further 12 months.
3. Will My Bank Account Be Monitored if I Get an IVA?
When you enter into an IVA, you agree to pay what you can afford each month to your creditors. Depending on your disposable income, this monthly figure may change after the annual review of your circumstances.
To ensure the payments you’re making are fair to both you and your creditors, your IVA Supervisor may ask to see your bank statements or payslips as they are required to complete an income and expenditure review. This may feel intrusive, but it is a helpful part of an IVA that allows you and your IVA provider to tailor the monthly payments to your financial situation.
4. Are there Any Disadvantages to an IVA?
An IVA can be a very effective tool for helping you regain control of your finances, but there are some disadvantages that you need to consider before choosing this solution:
- Your IVA will negatively affect your credit rating. The drop in your rating will last for the duration of your IVA, and possibly for up to one year after.
- If you fail to complete your IVA, lenders may backdate the interest owed on your debts, or they could petition for your bankruptcy.
- There are some debts that cannot be included in an IVA, such as court fines.
- If you receive any extra money in a windfall, such as an inheritance or lottery winning, you may need to pay all or part of it into your IVA.
- Your high-value assets, such as valuable cars or watches, may need to be downgraded, and the remainder of the proceeds paid into the IVA.
5. What if I Want to Go On Holiday During My IVA?
There is nothing within an IVA that can stop you from travelling, either within the UK or abroad, aside from the cost. Being in an IVA, it is unlikely you will have adequate cash available for an expensive holiday. Of course, if someone wants to pay for you to go on holiday, there is nothing preventing them from doing that.
You could also work some extra hours each month to bring in a little more cash. You will need to pay a portion of any additional income earned into your IVA, but you can retain some of it. In this way, you will continue to meet your monthly IVA requirements and can set aside some savings each month for a holiday.
6. What Will I Have Left to Live on In an IVA?
Your IVA payment arrangement is based on what you have left after your income and reasonable living expenses are taken into account.
For example, if you earn £2,000 and your monthly living costs are £1,750, then your IVA payment will be £250. All IVA firms use industry-recognised allowances for household budgets, which include food, clothing, travel, etc. These allowances help them identify your monthly living budget, and make sure all your necessary expenses are covered.
7. What About My Extra Earnings?
There is a general rule about wages and IVAs, which is that you can earn up to 10% more than your usual take-home pay without paying anything more into your IVA. However, if your extra monthly earnings are more than this, you will need to notify your Supervisor. From any earnings you make over the 10% threshold, 50% will need to be paid into your IVA.
8. Could My IVA Be Refused?
There are several reasons why IVAs are sometimes refused, but the most common one is this: For your IVA to be approved, 75% of your voting creditors (by value) need to agree to the terms of the IVA. As long as 25% (by value) or less of your voting creditors reject the IVA, you will be able to go ahead with it. Not all creditors will vote in the IVA decision process.
9. What If I Need to Buy a Car?
Being in an IVA can make getting credit more difficult, but it doesn’t stop you from having access to finance and loans. No matter which type of finance you hope to apply for, the key factor in determining whether you will get the loan is affordability.
The finance firm will look at your income and expenses and decide whether or not the loan you are applying for will overburden your financial situation. If they decide to go ahead with your application, you may end up paying a higher interest rate due to your IVA. Your Supervisor will have the final say, as they will need to confirm that they are happy for you to obtain the car finance.
10. How Will My IVA Affect My Partner?
If you enter into an IVA, you are committing to a long-term agreement, and the income and expenditure of your entire household will be taken into account when your payment plan is created.
A note will be placed on your credit file, but not on your partner’s. If you hold any joint debts with your partner, they will still be liable for them, even though you have entered into an IVA, so it’s important that you consider the payments that your partner will need to make to these debts outside of the IVA.
If you have a jointly owned property, only your share of the equity will be taken into account, not your partner’s.
For advice on whether an IVA, or any other debt solution available, is right for you, please get in touch with Debt Movement’s friendly team of guides today, and begin your journey to financial freedom.
