Debt Camel's Guide to IVAs

IVAs – the essentials

An Individual Voluntary Arrangement (IVA) is a type of insolvency like bankruptcy:

it is long-term, legal contract between you and your creditors that can’t easily be changed or ended;
typically, you make monthly payments for five years;
if you have a house with equity, you usually have to remortgage in the last year or make an extra year of payments;
at the end of a successful IVA, your remaining debts are wiped out.

An IVA may be a good debt solution for you but in 2018 about a quarter of IVAs fail. And the firms that set up IVAs make large fees from them, so you can’t think of them as impartial advisors. This Guide to IVAs provides information so you can:

ask the important questions and make the right decision about starting an IVA;
look at your possible options if you encounter problems when you are in an IVA or at the end; and
see recent news about IVAs.

How to decide if an IVA is right for you

Start with:

An introduction to IVAs This gives an overview of how IVAs work, the pros and cons and who they are most suitable for.

A good IVA firm will help you understand all the terms in your IVA – keep asking questions until you are sure you know exactly what you are committing yourself to.

If you don’t feel your IVA firm is being helpful, talk to another one!

Ask who will administer your IVA. Sometimes firms to set up an IVA then hand you over to a different firm to supervise the five/six year IVA. I don’t think this is a good idea – you may feel you are getting helpful individual advice when your IVA is set up, but you also need to be able to have someone you can talk problems through if they occur, not be passed to some “warehouse” where you are just another case number.

You need to have a good list of your debts and the amounts you owe before an IVA is started. Bankruptcy will automatically wipe out any debts you have, but in an IVA you have to list them or they are not included. Although debts can sometimes be added later, you may find that your IVA is extended so it takes longer, so it’s important to try to get all the debts right at the start.

If you owe the tax man money, this usually means that you have to have submitted all the tax returns for previous years, see Tax debts – should I go bankrupt or for an IVA? for more details.

Important areas to focus on include:

It is more complicated if you are self-employed or own a small company, but if your business is profitable a “self-employed IVA” can work well, read IVAs and the self-employed.

Look through the other links on this page. They will give you a feel for the sort of things that crop up during an IVA, so you can think about what might happen in your life over the next five to seven years.

If you have a house, read this!

One of the big pluses of an IVA is the fact that a house with equity is protected. But you will have to try to take money out of your house in the last year of your IVA. Don’t wait until that point and get a nasty surprise, read up about this before you start the IVA:

how equity release works in an IVA;
the “secured loan” clause;
must I take a secured loan in an IVA? This is the horror story of a one person who was told he had to take a 15 year secured loan at 19% interest;
Managing debt with mortgages set to rise If your mortgage payments increase can you still afford your IVA?

You also need to consider if you may have to move during the IVA. With an IVA showing on your credit record, you won’t be able to get a new mortgage for six years, even if your IVA has finished. See Can I sell my house to end my IVA? for details.

Do you have a car on finance?

This can cause a problem at the start of the IVA and also when the finance ends, as your credit record will then be very bad because of the IVA. Read Car finance in an IVA for details – it depends on what sort of finance you have.

Is there a better alternative for you?

Your IVA firm may be saying that an IVA is your best option – but they are going to make several thousand pounds in fees from your IVA. They could be right – but it’s your future so you need to make sure.

Don’t think “It must be better than my current situation“, cross your fingers and sign on the dotted line. If you don’t like dealing with legal contracts, you can ask for help to understand the proposed terms at your local Citizens Advice.

IVAs were originally intended for people who have assets to protect such as equity in a house or shares in a private company. If you don’t have assets, then it is very likely that bankruptcy or a DRO will be over more quickly and cost a lot less than an IVA.

So look at the following comparisons:

IVA or bankruptcy Don’t be scared of the word bankruptcy and assume an IVA must be better:
- Bankruptcy is over for 80% of people in a year.
- Most people don’t have to make any monthly payments in bankruptcy.
- IVAs and bankruptcy are pretty much the same for your credit rating or your chance of getting a mortgage.
IVA or a DMP If your situation may change – for better or worse – a flexible DMP is often better than an inflexible IVA;
IVA or DRO If you qualify for a DRO (including you are renting and your debts are less than £20,000) then it is always a better solution than an IVA!

If you have a partner with debts, don’t assume that both of you getting an IVA is the simplest option. Read Couples may need different debt solutions. It could be better (quicker, less risky) for one of you to go for bankruptcy or a DRO, or if one of you could avoid insolvency altogether and protect their credit record.

See if you can reclaim PPI or get payday loan refunds before you start an IVA. Many people get much larger payouts than they expected – if yours is large enough you may not need an IVA at all as your remaining debt may be manageable. Once in an IVA, your IVA firm will collect any refunds and distribute them to your creditors – this will NOT reduce the IVA payments you have to make.

What happens during an IVA

Budgeting

You are probably going to have to work very hard at budgeting to get through the next five years:

An emergency fund If you can save a bit each month, then you will be in a better position to manage any problems that occur.
Do you have to give your IVA firm your online banking logins? No, but it may be a good idea!
Can a debt be added to an IVA? Sometimes a debt is forgotten or only emerges after an IVA starts – whether it can be included in your IVA depends on how large the debt is and what sort of debt.
Overtime and an IVA You get to keep some but not all of the extra money.

Switched to a different firm

Your IVA may be sold to a different firm. So much for being told how great and helpful your IVA firm is at the start, once you have signed up to an IVA your case can just be sold to another firm and you have no right to object. This is happening in increasing numbers – here are some of the bigger sales in the last year:

Creditfix have bought Knightsbridge’s clients,
Aperture have bought Debt Free Direct’s IVAs,
Freeman Jones have bought Harrington Brooks’s IVAs.

A few people with IVAs will find that their cases are sold two or three times during the life of the IVA.

When you are struggling with the payments

About a quarter of IVAs fail – this is a disaster as you are left with your debts plus the IVA fees and you .have wasted a couple of years struggling with the IVA.

What happens if you can’t afford the IVA payments? there is some flexibility built into IVAs but it may not be enough. Ignore the marketing about “an affordable monthly payment” – it may sound manageable at the start but if your income decreases or your expenses go up, your IVA may fail.
Pregnant and can’t afford your IVA? Pregnancy is the example here, but your IVA could also run into major problems with redundancy, long-term sickness or separation.

So if things go badly wrong, you may want to look at your other options;

How much should I offer to settle my IVA early? You may be desperate to end your IVA if things go wrong (or indeed if things go very well). But hti son’t improve your credit record.
Can I switch to a DRO? This may be an option if your IVA is failing but you need to know if you fit the DRO criteria.
I want to sell my house to end my IVA This is normally an extremely difficult option – find out why and what the alternatives are. It would have been much better to have sold your house at the start and never started the IVA, avoiding having an insolvency marker on your credit record making it impossible to get a new mortgage.
What happens if you inherit money? This goes to your creditors. Your IVA only ends if there is enough to repay all your debts in full plus the IVA fees.

Get a loan to end all this?

You may be offered an “early exit loan” – don’t assume this is great, the promised credit rating improvements are mostly illusory, but they may suit some people:

Perinta early exit loans proposed by Creditfix If you have received an email from Creditfix suggesting you take one of these loans to end your IVA early, look closely at the cost (high) and risk (increased) of doing this.
Sprout early exit loans proposed by Aperture This is a variation that is much better value for the IVA customer, but you still need to be careful it will work for you.

Complaining about an IVA

If something goes badly wrong, you might expect to be able to complain and get some redress, especially if you should never have been sold an IVA in the first place. You can certainly complain, but it’s complicated and you are very unlikely to ever get any compensation. However, threats of complaining sometimes seem to be the only way to make some IVA firms see sense:

At the end of an IVA

What happens after your last IVA payment? – find out when you should cancel the STO, what the final Review is and who gets told that your IVA has ended.
IVA completion certificate delays are too long – some firms manage this in 8 weeks, some take much longer than 8 months as the comments at the bottom of this article show.
How to repair your credit record after an IVA finishes – it’s much the same after bankruptcy, an IVA or a Debt Relief Order.
What happens to your credit record if you settle your IVA early?
PPI reclaims after your IVA has finished – the recent Appeal Court decision in the Green v Wright case means that IVA firms can continue to collect PPI after your IVA has finished.
Why you may get a cheque for unclaimed dividends – this is pretty unusual, but good news if it happens to you!

IVA news and policy

How should you choose an IVA firm? I think IVA firms data should be published so people can make a good decision (2018)
2017 Insolvency Statistics – the real story (2018)
Creditfix trying to increase fees for Knightsbridge IVAs (2017)
Explaining the 2016 insolvency statistics (2017)
Why IVA lead generators should be regulated (2016)
The 2016 IVA Protocol – what has changed from the 2014 version? (2016)
Varden Nuttall – what is happening? (2016) It’s rare for an IVA firm to go bust, and with several thousand IVA clients, VN was not a small outfit.
Why are there so few complaints about IVAs? (2015) It’s not because everything is well with the sector.

IVAs – answering your questions about Individual Voluntary Arrangements