An Individual Voluntary Agreement (almost always referred to as an IVA) is a contract, or a formal and legally binding contract, between you and your creditors in which you pay back what you are obligated to pay over an agreed upon amount of time.
This, of course, is what your original contracts or agreements were when you first signed up for the loans, credit cards and store credits, but obviously things have changed for you since the time you obtained those forms of credit. You are now inundated with debt and find it extremely difficult to pay back according to those contracts or agreements.
In other words, an IVA is an option (and there are others) that is a recognized, formal and legal solution to your debts. It is something that is approved by the court and your creditors must adhere to it. Of course, this means that you also have to follow the letter of the contract. If you do not, or cannot, then your insolvency practitioner will inform you of the ramifications of it.
The IVA is created by an insolvency practitioner because an IVA is a form of insolvency, although it is different from bankruptcy. The insolvency practitioner (IP) is a lawyer or accountant, and will charge a fee for creating and administrating the IVA. Common fees are about £5,000. This may seem to be a great amount–and it is–but if you owe £15,000 then the amount of interest (or, more accurately finance charges) that you will pay on that amount over five years (the typical period of time for an IVA) will be far more than that fee. In other words, it is far better to pay £5,000 than it is to pay £8,000.
Your IP should be able to calculate how much money you can save in terms of costs (fees versus finance charges). Even in the unlikely event that you save little or nothing with an IVA, then an IVA could still be worthwhile as you will no longer receive harassing phone calls and letters from your creditors, and an IVA is almost always a far superior alternative to insolvency than is bankruptcy.
The IP will work with you in creating a mutually agreeable repayment plan for the IVA. This plan is then put forward to your creditors. Once they agree to the plan then it becomes a contract or binding agreement, and you will agree to repay a set amount each month. Historically, the term of the IVA was 3-4 years; now, the typical term is 5 years.
The payments that you make will be to the IP, not to the creditors; who will then allocate the money to your creditors. In other words, your IP is an intermediary and once the agreement is in place, you will no longer received calls, letters, emails or messages from your creditors.
The IP may retain a portion of your monthly payment for his or her fees. If so then that ought to be disclosed to you at the beginning. Ask for that information, and ask for any other costs and fees of the IVA, as well as the benefits (financial and otherwise) and drawbacks to the IVA. If you owe a relatively small amount (such as £3,000) then the above-mentioned fee of £5,000 ought to be lower, but it may still be high in relation to what you owe.
It is extremely important to remember that an IVA is simply one option, and that your IP can offer other choices. In this sense, think of your IP as you do of your doctor. If you are involved in an accident then surgery is most likely your best option, but you still need to find out and weigh the other options that you may have.
Again, you will pay to the IP a set amount each month for a set amount of time, who will then distribute the relevant amounts amongst your creditors. If the agreement is for you to pay £200 each month for 5 years then you will have paid a total of £12,000. If you had owed £15,000 then that means £3,000 (possibly more, depending upon whether or not your IP retains a portion each month for various costs and fees) will have been written off and which you do not have to pay back.
You creditors are aware of this, and it is usually to their benefit to accept this. This can be better understood by reversing the situation. If someone else owed you £15,000 then you may not be completely happy if that person paid back just £12,000 but you will still be happier than if that person did not pay you back at all. Your creditors feel the same way. Your IP will advise you if and how much this can be realized in your situation.
Again, an IVA is one option for insolvency, and it is usually the best option for those who are faced with overwhelming debt. However, it is not an option for some people. Not everyone can qualify for and obtain an IVA. There are some criteria for an IVA. The debts themselves need to qualify. In the agreement, you can almost always include credit card, personal (unsecured or signature) loans, store cards as well as tax debts, electricity and gas debts, and council tax arrears. However, mortgage loans, secured loans, jointly-held obligations and rent are generally not accepted in an IVA. You cannot include student loans, child support arrears, maintenance arrears which have been court-ordered, and magistrates’ court fines.
The amount of debt ought to be at least £10,000 and include at least three obligations from at least two creditors. You personally need to show that you have at least £100 in spare income each month, and have a regular and predictable source of income or revenue. If you have assets, such as a home, then you may be requested to refinance or remortgage any loan and/or take out some equity from your home. Your IP will inform you how and what to do in your situation, and provide you an IVA debt helpline number in case things change once again for you.
We hope that this information has proven useful and helpful to you. To derive more use and help, contact us at IVA Pros.