Is an IVA worth it?
That depends on the circumstances.
An IVA, or Individual Voluntary Arrangement, is a popular debt solution in the UK that can help you avoid bankruptcy and even have some of your debt written off.
In this article, we’ll explain what an IVA is, how it works, its pros and cons, and how it can affect your credit score.
Let’s dive in.
An Individual Voluntary Arrangement (IVA) is a legally binding agreement between a debtor and their creditors that sets out how and when the debt should be repaid.
This type of arrangement allows you to pay off what you owe at an affordable amount over a set period and prevents your creditor from taking legal action against you over that debt.
What can get you into debt? Read more about it here:
An IVA helps you manage your debt repayments and finances for a pre-arranged period of time.
This set period is usually 5-6 years, during which you’re required to make fixed monthly payments toward the debt. After the set period expires, your remaining debts may be written off if it’s determined that you can’t afford them.
However, not all debts can be part of an IVA.
Debts that can be included in an IVA are:
Debts that can not be included in an IVA:
Getting an IVA will require you to find an Insolvency Practitioner (IP) – usually a qualified lawyer or accountant. They will negotiate with your creditors on your behalf and manage payments to them when you apply for an IVA.
The IVA fees and costs of some practitioners may run as much as £5,000. This sum is usually included in the agreement, though some IPs may require payment in the form of a lump sum before the IVA is set up.
You might be interested in: IVA companies to avoid.
Once you decide to get an IVA, your IP will:
If your creditors agree to the IVA, it will be legally binding on all of them. This means they cannot take legal action against you or contact you during the set period.
If you finish your IVA successfully, you’ll be officially debt-free. The IVA will be removed from your credit profile at the end, allowing you to start rebuilding your credit score so you can reach a fair or even great credit rating.
The typical time it takes to set up an IVA is around 4-6 weeks, depending on the complexity of your individual circumstances.
An IVA may be worth it on a budget.
To figure out if an IVA is a good idea for you, you need to evaluate your financial situation and take a close look at your monthly income, expenses, and debts owed.
This type of agreement can give you the means to get out of debt and avoid bankruptcy. It is a good idea for most people struggling with debt because they have one fixed monthly payment that they can afford.
Although an IVA can help a debtor stay out of court, it does come with some consequences.
|Organizes your debt into an affordable monthly payment
|Negative impacts on your credit score
|Prevents creditors from taking legal action against you
|You need an IP to get an IVA, whom you have to pay
|It’s legally binding on all creditors
|Your job can be affected
|Allows for some of your debt to be written off
|An IVA is public, and everyone can see it on your credit file
|Freezes Interest rates and charges on debts
|You need to meet the eligibility criteria to get an IVA
|Protects your pension and your assets
|It may force homeowners to release equity
The IVA will be reported to your creditors.
For example, if the agreement includes debt to the council, utility suppliers, or mobile phone providers, they will be notified. Your IVA will be disclosed to the HMRC and trade creditors in case you are self-employed.
Your IVA details will also be available online at the Individual Insolvency Register, which can be accessed by anyone. But this Register is mostly used by insolvency and credit industry professionals.
Yes, you can still get some types of loans with an IVA. However, the terms of the loan will be different than if you didn’t have an IVA.
For instance, you will have a higher interest rate and low limits on the amount you will be allowed to borrow.
It’s important to speak to your IP if you’re planning on getting a loan during your IVA because there is a limit to how much you can borrow while you’re paying off your debt as part of an IVA.
There are some cases where an IVA may not be the best option.
For example, if you have funds to repay the debt or if you have a lot of assets that could be used to repay your debts, an IVA may not be necessary.
An IVA may also not be right for you if you do not think you will be able to stick to the set payment plan or if you have a lot of debts that are not covered by the agreement.
It’s important to know that there are other options available if you’re struggling to repay your debts. Some of these options include Debt Relief Orders and bankruptcy. If you’re not sure what debt solution is the better option for your situation, you should also make sure to speak to a professional debt adviser.
An IVA can leave you with a low credit score, which could make it hard for you to get approved for credit in the future.
Since your credit score will drop, creditors will see you as a high-risk customer– because it suggests that you have had trouble repaying debt in the past – and either reject your application altogether or charge you a higher interest rate.
You cannot remove an IVA from your credit report.
Paying off the IVA early will not remove it from your credit file, but you can have it labelled as ‘completed’. The IVA will automatically disappear from your credit report after six years.
Starting from the date of approval, the IVA will appear on your credit report for the next six years. However, the debts included in your IVA may appear as separate entries.
If you already have a mortgage when you get an IVA, it will not be included in the insolvency agreement, and you will be expected to continue making payments as usual.
However, having an IVA will affect your chances of getting a mortgage. Some lenders don’t consider applicants with an IVA on their credit file, and those that do will ask you to put down a bigger deposit and pay higher interest rates than usual.
What’s more, you will have to ask for permission from your IP and your creditors to take out a mortgage during an active iVA.
If your IVA application is rejected, you may want to consider other debt repayment options such as Debt Relief Orders, debt consolidation loans, or guarantor loans.
Depending on your situation, you might be a better candidate for bankruptcy, although to reach this decision, you need to carefully weigh the pros and cons.
An IVA doesn’t usually affect a person’s job, but it can be an issue with certain professions, including in the fields of:
Individuals in those roles won’t lose their jobs over their IVA but will be required to follow certain rules unless the terms and conditions of their work contract state otherwise.
Is an IVA worth it? That depends on the assets you owe, how much debt you have, the current assets that you hold, whether the job you have will be affected by it, and most importantly, the conditions of your repayments. An IVA can be well-worth if it helps organize your debt and helps pay back what you owe, but it’s not an ideal solution for every situation.
My name is Marija, and I'm a financial writer at DontDisappointMe. Although finance might not be everyone's cup of tea, my 10+ years of working in one of the biggest banks in my country, and my interest in extensive research on everything finance/investment-related, have made me somewhat of an expert in the field (if I do say so myself). No longer having the passion to work in a corporate setting, I decided that I couldn't let all of this knowledge go to waste so I started writing. And, here I am! Today I try to share my knowledge with my audience in the hopes of making this topic as simple and interesting as possible. In my leisure time, I like spending time with my family and travelling to new locations.