IVAs – the essentials
An Individual Voluntary Arrangement (IVA) is a type of insolvency:
- it is long-term, legal contract between you and your creditors that can’t easily be changed or ended;
- in its usual form, 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 an IVA that completes successfully, your remaining debts are wiped out.
An IVA may be a good debt solution for you but at the moment about 20-25% 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 news items about IVAs
How to decide if an IVA is right for you
- 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! Make sure you ask your IVA firm if they will be administering your IVA – in 2016 there has been an increasing trend for some 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.
Important areas to focus on include:
- how long do IVAs last? How many fail?;
- is your pension safe in an IVA?
- should you use disability benefits to pay your debts?
It is be more complicated if you are self-employed, but if your business is profitable a “self-employed IVA” can work well, see this Business Debtline factsheet.
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 years.
If you have a house
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, find out what is involved 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.
Check out the other alternatives
Then look at how the main alternatives compare to an IVA – one of them may be better! Your IVA firm may be telling you that an IVA is the best option for you – but then they are going to make several thousand pounds in fees from your IVA.
Don’t assume “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 could ask for help to understand the proposed terms at your local Citizens Advice.
IVAs were originally intended for people who have assets to protect – equity in a house or shares in a private company say. 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 and an IVA isn’t better for your chance of getting a mortgage than bankruptcy;
- IVA or a DMP If your situation may change – for better or worse! – then 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!
Also see if you can reclaim PPI 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 you have started an IVA, your IVA firm will collect any PPI and distribute it to your creditors – this will NOT reduce the IVA payments you have to make.
During the IVA
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 payments may no longer be affordable. Five years is a long time and a lot can happen – think back to your own life five years ago…
That doesn’t mean that an IVA isn’t right for you, but you do need to be aware of what the pitfalls can be:
- What happens if you can’t afford the IVA payments? there is some flexibility built in to IVAs but it may not be enough and your IVA may fail.
- Can I switch to a DRO? This may be an option if your IVA is failing but you need to know what your other alternatives are.
- 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.
- 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.
- Managing debt with mortgages set to rise If your mortgage payments increase can you still afford your IVA?
- 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.
- 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.
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 you IVA early, you need to 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.
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.
- 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.
IVA news and policy
- The largest IVA firms in 2016 (2017)
- Explaining the 2016 insolvency statistics (2017) The 2016 numbers showed a huge increase in IVAs – I argue that some people are being mis-sold IVAs who should be choosing a DRO or bankruptcy.
- Why IVA lead generators should be regulated (2016)
- Rethinking Insolvency Practitioner regulation (2016) a guest post by Peter Sargent
- How should you choose an IVA firm? Why I think IVA firms data should be published so people can make a good decision (2016)
- The 2016 IVA Protocol – what has changed from the 2014 version? (2016)
- Secure Trust is closing its current accounts – these have been recommended by many IVA firms, so find out what your new options are (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…
- Creditfix’s proposed IVA variation (2015)
- Should you accept DFD’s proposed IVA variation? (2014)