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Individual Voluntary Arrangement (IVA)

The Individual Voluntary Arrangement (IVA) was introduced by the government as part of the Insolvency Act 1986. It is a valuable alternative to bankruptcy, allowing someone with debt problems to make a proposal to the people they owe money to (their creditors) and to reach a final, legally binding settlement.

The IVA is also an excellent alternative to Debt Management Plans for many people. It allows you to eliminate your debts, rather than learning to live with them. IVA benefits include lower monthly repayments, final elimination of your debt after five years and a formal legal agreement that means creditors have to stop chasing you. For these reasons, an IVA can be a better choice than debt management for some people.

An IVA settlement involves agreed monthly payments over a period of five years. Because these payments are based on what an individual or household can actually afford, exact amounts vary. But payments can start from as low as £150. That is usually significantly less than existing minimum payments on credit cards and loans.

How it works

The IVA process is legally binding, unlike debt management, and it is simpler than bankruptcy with a less severe outcome. With an IVA, the individual rather than a court proposes what the regular payments should be. Most lenders have standard terms for what they will accept in an IVA proposal and your IVA advisor will bear this in mind when working with you to find out what you can afford to pay each month.

An IVA advisor makes the IVA proposal to creditors on your behalf and it has to be agreed by at least 75% of your creditors . Agreed monthly payments are part of all IVAs and some proposals also include a lump sum payment, using equity release, for example. The process can take as little as 4-6 weeks from application.

A standard IVA runs for a five year (60 month) period. An Insolvency Practitioner controls the fund that you contribute into and uses it both to pay off creditors and to cover IVA fees. You will usually have regular reviews, with payslip reviews each quarter and a full assessment of your circumstances every year.

After five years of successful IVA payments your debt is cleared, even though creditors have usually received less than everything they are owed.

When is an IVA suitable?

An IVA is often suitable when someone is unable to pay off their debts but does not want to file for bankruptcy. It can be more attractive to creditors than bankruptcy. The exact circumstances when an IVA will be suitable are complex and ClearStart is able to help you assess your own situation. Typically, an IVA can be a good choice when

• your unsecured debts are at least £15,000 -£20,000
• your monthly payments are at least £150
• you have a stable monthly income.

Advantages of an IVA	Disadvantages
Monthly payments are affordable You won’t have to go bankrupt You keep your house and car Interest payments are frozen by law Legal action is stopped by law Overall debt is substantially reduced Your debts are cleared in five years	No more borrowing during the IVA period Credit rating is poor for a further year after the IVA Default can result in bankruptcy proceedings Five year period

What to look out for

There are both reputable and more 'pushy' companies providing IVAs. Take particular care if someone offers to reduce debts by 75-90% before knowing more about your situation.

How to apply for an IVA

ClearStart is able to help you make the decision as to whether or not an IVA would be the best choice. A dedicated department processes hundreds of IVA applications for individuals every month.