How Do IVAs Work?

An Individual Voluntary Arrangement, or IVA as it is more commonly known as, is a way of restructuring your debts over a 60-month timeframe and paying back your creditors only what you can afford.

It is a legally binding government-backed debt management solution available only to residents of England, Wales and Northern Ireland who have more than £5000 of unsecured debt with two or more creditors. An Insolvency Practitioner must be appointed to set up the IVA due to its complex and legal nature, and they take over the negotiations with your creditors and sort out a debt repayment plan that is based on your disposable income after your living expenses have been taken into account.

You will no longer have to make a decision between heating and paying debts, or reduce your food shopping less and less every month to free up cash as debt payments escalate. Your Insolvency Practitioner will take a look at every aspect of your finances, including your income, outgoings and debt balances, and help you compile a realistic budget you can live on for a few years while making acceptable payments to your creditors. There are limits on the different types of expenses you can claim, but there are a lot of child-related expenses that can be taken into account.

Once your Insolvency Practitioner has a workable budget from you, they contact all of your creditors to tell them about the IVA application and obtain current figures for what you owe, and the interest rates, fees and charges that are being applied. They then take all of the information and create a draft IVA proposal.

Once this has been checked and is complete, your Insolvency Practitioner will call a creditor’s meeting to put the proposal to a vote. All papers are sent to your creditors beforehand, and on the meeting day your proposal must be approved by 75% of the creditors by debt value for it to get the go-ahead. Even if the remaining 25% do not agree with the proposal, it will still go ahead.

Once approved, your Insolvency Practitioner will begin to put into place the details of the IVA agreement. They will set up an account for you, into which you transfer a monthly payment for the next 60 months. Your Insolvency Practitioner then distributes this payment between your creditors.

You must not miss any payments otherwise it could render your agreement void and your IVA will fail. Your creditors could then move to take action against you. Only the continued presence of an active IVA stops them from taking action, as it is illegal for them to do so while you are fulfilling the terms of your contract.

If any of your circumstances change, such as you lose your job or have another child, you must contact your Insolvency Practitioner immediately. They can usually talk to your creditors and arrange either a payment break until you are back on your feet or rearrange part of your budget to take account of any added expenses.

Once a year your Insolvency Practitioner will ask for your bank statements and payslips to ensure what you are paying is still feasible. With salaries dropping and things getting more expensive you may be stretched too far with your payments. Alternatively, you may have had a pay rise or a bonus and your Insolvency Practitioner may ask for some of that to go to your creditors.

Once you reach the end of your 60-month IVA debt plan, your Insolvency Practitioner will contact you to let you know your obligations have been fulfilled and you can stop making payments. It will take a few more months to contact the creditors, have the rest of your debt balances written off, tie up any loose ends and issue you with a discharge certificate. However, you can start to consider yourself debt-free from the time of your last payment.