What is an IVA?
An IVA is a debt solution available in the UK. It is an alternative to bankruptcy and usually lasts for five years. Upon successful completion any debts not repaid are written off. During the IVA you make monthly repayments that are based on your income and outgoings.
What can an IVA do for you?
You'd be forgiven for not being familiar with The Insolvency Act of the 1980s - most people aren't. But last year over 50,000 people used this government legislation to take control of their finances. Here are a few ways an IVA could help you.
Write off up to 90% of your debts
Stop lenders letters and calls
Freeze interest and charges
Pros & Cons of an IVA
How it can help
- Your debts are written off at the end of the term
- There is a clear finish date
- Payments are based on your income and outgoings
- Your interest and charges are frozen
- Your lenders cannot contact you for payments
- There shouldn’t be a need to sell your home
The down side
- Your credit rating is impacted for six years
- Details of your IVA will be placed on a public register
- If you fail to complete the IVA it could lead to bankruptcy
- Your expenditure will be restricted
- If you’re a homeowner your IVA will be extended for 12 months (see below)
Is an IVA right for me?
Here are a few points to help you understand if an IVA is right for you; however, the best way to know for sure is to speak with a debt advisor.
- The first indication an IVA may be suitable for you is if you were to pay back your debts at an affordable rate, it would take you over 6 years to become debt free.
- Your circumstances should be stable. There is little point starting if you’re about to move home, quit or lose your job, or receive a large windfall or pay rise.
- You intend to stick to the plan. Seems obvious, but there are many people who only start an IVA for a small period of respite from their lenders.
- The minimum monthly amount you can pay each month changes slightly from company to company, it is usually around the £70 mark. If you can’t afford this then you would not qualify. Again, it’s worth speaking to a Debt Advisor to find out.
How does an IVA affect you?
It shouldn’t take you long to figure out the benefits of IVAs. The benefits of IVAs appear across many websites and advertisements. What isn’t as obvious are the negatives.
Even though your IVA journey will be unique to you, there are some features that will impact everyone on this debt solution. A debt advisor will look into your circumstances to make look at the potential impact, and could suggest an alternative solution if the impact would be too great.
Will I lose my job on an IVA?
There are certain jobs you will not be able to hold on an IVA. The jobs you won't be able to hold are usually within financial services, legal, and certain public sector positions such as the Police and Prison Service.
You’ll find when you speak with a debt advisor they’ll ask you some questions about your work. One of the reasons is to asses if an IVA is suitable for you. If your job would be impacted they’ll recommend another more suitable solution. So it’s important you seek professional debt advice before making any decisions.
Can you keep your car on an IVA?
Owning a car often goes hand in hand with earning a living. For this reason, creditors are sympathetic to allowing you to keep your car.
If your car is considered expensive you might be asked to downgrade, but you shouldn’t be left in the position where you don’t have a car.
If your car is on finance, your monthly payments will simply be factored into your income and outgoings; therefore, you’ll continue your car finance plan during your IVA.
Will I lose my home on an IVA?
If you rent your home there should be no problem starting an IVA. However, it’s always worth checking your tenancy agreement to be sure.
If you’re a homeowner, your home should be protected. That means you won’t need to sell your home to repay your debts; however, six months before your IVA finishes, you will be asked to attempt to remortgage. This is known as the equity clause.
Will an IVA impact my credit rating?
An IVA affects your credit rating for six years from the date it starts. You can improve your score in the usual ways but any credit taken out while your credit file shows an IVA is likely to be less favourable.
This should be a time where you are concentrating on getting debt free and not taking out further credit.
Credit cards and loans on an IVA
You will only be allowed to take out up to £500 in credit while on an IVA. Anything more than this and you will need to obtain credit from the person overseeing your IVA (the Insolvency Practitioner).
Expenditure restrictions on an IVA
When you’re on an IVA, restrictions are placed on your expenditure. The restrictions vary depending on the number of people living in the household.
For example, at the time of writing, the monthly food allowance for one adult is £222. That doesn’t mean when you get to £222 earlier than month end you have to stop buying. It may be that you cut back in another area that month.
IVAs are just as much about learning to manage a household budget as they are about getting debt free.
See if you qualify
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Typical IVA Example
Consolidate your debts into one affordable monthly repayment. Over a fixed term, any debts that haven't been repaid must legally be written off by your creditors. That means you get to keep more of your money so you can get your life on track.
Managing your IVA
Set up a direct debit
Starting an IVA is just as much about managing your household expenses as it becoming debt free. We’d advise you set up a direct debit for your IVA payments and your other bills.
This might seem obvious but direct debits are a simple and easy way to keep on top of payments. Just set up payments for the day you get paid. Your IVA company should be able to accommodate even if you aren’t paid monthly.
Understand the 10% clause
We’ve said it before and we’ll say it again, understanding this clause is the 10% clause is the key to success. We’ve seen so many IVAs fail because of this clause.
What people don’t realise is, if they earn more than they stated they would, some of it might need to be paid into the IVA.
Managing your budget when on an IVA
This will be a big key to success.
Today there’s so much information on how to save money. Whether it’s cooking on a budget or searching for bargains. Finding areas where you can cutback will on go a long way to becoming debt free.
Keep in touch with your IVA company
After being in debt it’s easy to get into the mindset where if things go wrong you simply bury your head in the sand. On an IVA you shouldn’t do this.
One of the problems is it’s easy to put them in the same bracket as your creditors – people to be avoided.
The thing is, your IVA company is just an intermediary between you and your creditors. They are there to help you. Any problems you are having, let them know as soon as you can. The quicker they know the quicker they can help you.