Understanding IVA’s (Individual Voluntary Arrangements) – How Exactly Do They Work?

Debt is a common problem for people all around the UK today. The unfortunate truth is that most of us, no matter what our situation might be, will need to borrow money at some point or another in lives. You might decide that you need to borrow money because you want help going to college and earning your degree. On the other hand, you may need to borrow cash for a new car, or to get the home of your dreams.

The majority of people won’t be able to go through life without any loan or debt. However, there are some people out there who struggle more with managing their money than others. That’s why financial organisations create tools for people who need help sorting their finances out after a difficult period.

If you get into a point in your life when you’re struggling with debt and you can’t see a way out, it’s always important to discuss your options with a free advisor. There are a lot of companies and non-profits out there who can give you guidance for free and make it easier to manage your money. You can even book a session with the Citizen’s Advice Bureau.

Speaking to a debt professional will bring you face-to-face with concepts like IVAs, or Individual Voluntary Agreements. Today, we’re going to introduce you to the basics of an IVA, and what it means to you.

What is an IVA? Individual Voluntary Agreement

An IVA is essentially one of many methods that people in the UK can use to regain control of their debt. If you go to a professional to receive free debt advice, they might give you a selection of strategies that you can use to improve your credit score, reduce your loan repayment, and manage your cash more effectively.

An IVA, or Individual Voluntary Arrangement is one of the more popular tools for debt management, because it effectively freezes your loan situation, and makes it easier to pay back the cash that you owe over an extended period. Ultimately, when you sign up for an IVA, you agree on a period of time when you’ll make repayments to all of the companies that you owe.

Once the period of your IVA is over, any debt remaining in your balance is simply written off, which means that you can start your new life from scratch, without having to worry about excessive loans. You can apply for an IVA in certain circumstances, and your debt counsellor or advisor will be able to give you more information on whether you’re eligible for this kind of strategy.

Importantly, to be successful in receiving an IVA, you’ll need to show that you can pay at least a portion of the amount you owe to your lenders on a consistent basis. This could mean that you need to show you have a regular source of income. Crucially, you don’t necessarily need to pay the full amount that you owe.

Being able to show a regular source of long-term income is important in an IVA, as the repayment structure will often last for about five or six years. Having a temporary job won’t be enough to cover this. You may also need to pay a lump sum towards the overall cost of your debt when you start your Individual Voluntary Agreement too.

How Does an IVA Work?

An IVA simply puts a hold on all of your debts, and stops your creditors from chasing you for money, while you repay a specific agreed amount each month. This strategy can take a lot of pressure off you if you’re dealing with the headache of more debt than you can reasonably afford to pay. The IVA isn’t something that you can create on your own, however.

You will need to speak to a debt professional about your situation, either in person, online or over the phone. A professional called an Insolvency specialist will deal with your case and help you to construct a proposal that you can take to your creditors. Once your official proposal is drafted, you take it to your creditors for them to approve.

Notably, while some creditors will be happy to accept an IVA, others won’t. There’s no rule to say that your credit provider shave to accept this suggestion from you. It often depends on your current circumstances whether your creditors agree to your plan or not.

If the companies that you are in debt to agree that they will allow the IVA, then this will start a legally binding agreement between them and you. Once you’ve signed the submission, you can’t back out – so you’ll need to make sure that you feel comfortable with the circumstances in place.

What Debts Can You Manage with an IVA?

Like most financial products, an IVA is intended for specific circumstances. There are certain kinds of loan that you can pay for with an IVA, but there are also debts that you will need to handle in another way. For instance, with an IVA, you can deal with common debts like:

  • Catalogue subscription debts
  • Overdrafts on bank accounts and credit cards
  • Personal loans
  • Council tax owed money
  • Debts on hire purchase
  • Mortgage shortfalls
  • Store and credit cards
  • Money owed to HMRC for income tax
  • National insurance contributions

On the other hand, an Independent Voluntary Agreement is not a suitable solution to pay of student loans, or court fines if you had to go to magistrate court. There’s also no support in IVA agreements for child support and child maintenance arrays. Certain kinds of car finance aren’t supported by this solution either.

Although you are technically permitted to include rent and mortgage arrears on your IVA, it’s important to remember that there are limitations. Your creditors need to agree to your IVA terms, and most of the time, rent and mortgage companies won’t do this. You’ll need to speak to a debt advisor about your options here and think about what’s realistically possible.

How to Set Up Your IVA Solution

If you speak to a debt professional and you discover that an IVA might be an option for you, then you can do your research and decide whether you do want to take this route. Remember, while an IVA can be a good way to organise your debt and write off some of the money you owe, it is a legally binding contract. If you feel concerned that you can’t stick with the guidelines of your IVA document, then this might not be the right solution for you.

It’s also worth noting that you’ll need to establish your IVA with the help of an insolvency specialist. These practitioners are professionals who have fees for their time. You’ll need to pay your expert for their assistance, and this usually means adding extra costs to the monthly payments you need to make as part of your IVA. The good news is that you shouldn’t be asked to pay any charges up front before your IVA is ready.

If you decide to follow through with getting an IVA, then you will work out the repayment plan that’s right for you using the guidance of your insolvency practitioner. This could mean that you set up standard monthly payments, a lump sum, or a combination of different fees. The repayment plan that you choose should be based on a specific amount that you can reasonably afford. Additionally, the creditors that you owe will need to agree that the amount is fair.

Most of the time, the terms of an IVA will last between five and six years. If you’re making regular monthly payments, they will often go straight to the insolvency expert, and this professional will distribute the money to the creditors that you owe. If the payments you make don’t cover the full cost of your debt by the time the period of your IVA is over, then you will not need to pay off anything else.

What if You End Up with Extra Money

You might be wondering what happens if you end up with extra cash available to you during an IVA. If you get some extra money during this time, such as a win at the bingo, or an inheritance from your family member, you probably won’t be able to keep it. Instead, according to the terms of your IVA, the money that’s available to you will be taken from you and given to your creditors.

At the same time, if you find that you’re owed some extra cash from something that occurred before you set up your IVA, that money still might not be safe. Your creditors might have the opportunity to claim the cash that comes to you, even if your IVA has already ended by the time the money comes through.

To ensure that you understand your rights and what’s available to you during this difficult time, it’s important to speak to a professional loan advisor.

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