I'm thinking about an IVA
An individual voluntary arrangement or IVA is a formal agreement between you and your creditors. It is a fixed-term debt plan that legally protects you from your creditors. An IVA freezes interest and cuts your monthly repayments to an affordable level. Better still, any debt left unpaid when the term finishes is written off. The exact amount of your monthly payment will depend on your circumstances but can start from as low as £70. If you are a homeowner, once your IVA is approved your home is protected. If you have a private pension this will also be protected. Typically an IVA will last for 5 years with you making an affordable monthly payment from your income into your IVA. Once your IVA has been fully approved, you don’t need to worry any more about your creditors contacting you. Your insolvency practitioner who supervises your IVA will deal with all your creditors. Once the final IVA payment is made, you are no longer be liable for any of the debts included in your IVA and there will be no further balance to pay, even if this means your debts have not been repaid in full.
Typically the time taken to set up an IVA is between 21 and 28 days. You will need to provide information to your insolvency practitioner and your insolvency practitioner will also obtain information online to confirm values of e.g. your car or your house. As you are making an important financial decision it is important to make sure that you take the time you need to read and understand your IVA proposal and make sure this is the right decision for you.
Here at Bennett Jones, we take time to explain your options to you and we are happy to answer any questions or concerns you may have before you make the decision to proceed with your IVA. Once you have read and approved the IVA proposal you are going to make to your creditors it is necessary to send the proposal to your creditors and allow your creditors at least 14 days to consider and vote on your proposal
Companies and businesses who are authorised by the Financial Conduct Authority to provide debt advice and debt counselling services will provide you with free initial advice. Bennett Jones specialise in providing IVAs for consumers who have unmanageable debts. We provide free no-obligation advice to anyone who is considering whether an IVA is the right solution for them. All options will be explored and if you decide that an IVA is not for you we will help you to find the solution which is best suited to your circumstances. There are many debt help resources on this website withing the resources area. Plus there are lots of advice available free of charge from organisations such as the Citizens’ Advice Bureau (www.citizensadvice.org.uk) and the Money Advice Service (www.moneyadviceservice.org.uk).
To qualify for an IVA you would have to owe at least £6,000 to two or more creditors and you would also typically need to be able to afford to pay at least £100 per month towards repayment of your debts after you have paid your day to day living expenses.
There is no upper limit to the amount you owe to your creditors which would prevent you from proposing an IVA. More often than not an IVA is going to be viewed by your creditors as the best option for them to receive something towards payment of their debts than any other method of repayment even though this is likely to mean that you will end up debt free after only repaying some of the outstanding debts which you owe.
There are 2 fees payable to an Insolvency Practitioner for the work involved in an IVA. The first fee is the fee charged by the Insolvency Practitioner for setting up the IVA – known as the ‘Nominee’s fee’ and the second fee is the fee charged by the Insolvency Practitioner for administering the IVA typically for a period of 5 years. This fee is known as the ‘Supervisor’s fee’. An example of the fees and how they are charged is set out below. The fees will be fully explained to you before you proceed with your IVA and they will also be disclosed in your IVA proposal which is sent to your creditors.
The important point to note about the fees and costs of an IVA is that the costs are deducted from your agreed affordable monthly payments. In the example below, you will see that no fees or costs will be payable by you in addition to your agreed monthly IVA contributions.
IVA fees and costs example
60 payments of £150 = £9,000
Nominee’s fee: £1,800
Supervisor’s fee: £1,850
Balance payable to creditors: £5,350
Creditors’ claims: £15,000
% distribution to creditors: 35.67%
No – The IVA is a private agreement between you and your creditors. The IVA documents are not filed with the Court but it is important to note that your IVA proposal must be true to the best of your knowledge. If you make a deliberately misleading or false statement in your IVA proposal this is a criminal offence with the potential risk of a prison sentence.
There is no limit to the amount of debt which an IVA can write off. Your creditors will vote on your proposal and if the amount of debt you are proposing to write off appears to them to be unreasonable your creditors are likely to vote to reject your proposal. At Bennett Jones, we are able to provide you with guidance and advice regarding how much you should offer to pay into your IVA for your IVA proposal to be accepted by your creditors. It is important to note that the offer you will be advised to make must always be an offer that is affordable for you after taking into account the amount you need to allocate to pay your day to day living expenses.
At Bennett Jones, we will review your household income and your expenses in line with guidance produced by the Money Advice Service and a set of agreed criteria which are included in the nationally recognised “Standard Financial Statement” We will then discuss with you how much you can realistically afford to offer each month to pay into your IVA while leaving you with a reasonable amount of money to cover payments of your living expenses. Your creditors will not expect you to live in poverty while you make payments to your IVA so they will agree to you spending money on reasonable expenses such as sports and hobbies etc. If you earn extra money from e.g overtime work from time to time you will be expected to contribute some of this money to your IVA but you will also be able to retain at least 50% of the extra money for yourself.
Yes – IVAs were originally envisaged to be an alternative to bankruptcy for self-employed people experiencing financial difficulties. In recent years many thousands of people who are not self-employed have found that an IVA is the right solution for resolving their debts. IVAs remain a good option for many self-employed people who wish to continue trading but are struggling with unmanageable debts. Bennett Jones are experienced at helping small business owners who will benefit from entering into an IVA. We will prepare IVA proposals that explain to your creditors how you expect to generate your future income from which you can afford to pay contributions into an IVA.
You may be surprised to know that you can access lots of information about your debts by simply going online and downloading for free your personal credit report. Experian and Equifax provide a full report of all the debts you owe including credit card debts, personal loans, car finance, mortgages and secured loans. You can also find out your credit score which will provide you with helpful information about how lenders will view any applications you may make to them at the present time for new credit.
When you enter into an IVA you decide how much you are willing to offer to your creditors as a monthly payment for a fixed period of time – typically 60 months. Clearly, your offer must be realistic and something which is reasonable as far as your creditors are concerned. It is important to understand that your creditors do not expect you to live in poverty for the duration of your IVA. The team at Bennett Jones will help you set a budget for reasonable living expenses including providing for spending on leisure activities and unexpected expenses which will inevitably arise at some time or other. Once you are happy that your budget covers all your day to day expenses you can decide how much you are willing to offer as a monthly IVA payment. The team at Bennett Jones will work with you to ensure that any offer you make is both affordable for you and also is likely to be accepted by your creditors.
If you owe money to the bank you use for your day to day transactions it might be necessary for you to set up a new bank account. Nowadays this process is quick and easy to undertake. The team at Bennett Jones will provide you with useful guidance and assistance to help you with any concerns you may have.
Immediately after your IVA is approved all interest on your unsecured debts and all charges will be frozen. It is important to note that debts such as mortgages or ongoing car finance will not be included in your IVA and you will continue to pay these as normal. After your IVA is approved you may continue to receive correspondence from some of your creditors. All you need to do is to send this to Bennett Jones who will remind those creditors to update their records to show that you are in an IVA and they must only deal with your IVA supervisor from now on. If your IVA is terminated because you don’t keep to the agreed terms then the interest which was frozen is likely to be added back to your debts.
At Bennett Jones we have helped thousands of people become debt free by entering into IVAs. Over several years we have built up solid working relationships with many creditors and their agents. This means that we can tell you with confidence how your creditors are likely to react to your proposal for an IVA. We will only recommend you proceed with your IVA proposal if we are confident your creditors will approve it.
Yes – Your IVA is a confidential agreement between you and your creditors. The record of you entering into an IVA will be registered on the Insolvency Register which is managed by the Insolvency Service a Government agency. This means that if anyone wishes to see if you have entered into an IVA they can search this register with details of your name. The terms of your IVA as agreed with your creditors are not made public and will remain confidential between you and your creditors.
Yes – There are many people who enter into IVAs while not receiving income from paid employment. You should consider whether other solutions for resolving your debts may be appropriate for your circumstances such as e.g. a Debt Relief Order. If you are happy that you can afford to pay contributions to your IVA and your Insolvency Practitioner agrees with you that your budget for living expenses is realistic there is no reason why you should not go ahead and propose an IVA to your creditors.
The major banks and credit providers have agreed to abide by the terms of a “Protocol” which provides an agreed standard framework for dealing with straightforward consumer IVAs and applies to both IVA providers and creditors. As part of the protocol, the major banks and credit providers have agreed that there will be NO circumstances in which a person who is proposing an IVA will be made to sell their house. The Protocol envisages that in certain circumstances a person who is a house owner may be expected to try and realise funds by obtaining an affordable remortgage. In our experience more than 90% of people who are homeowners and subject to IVAs complete their IVAs without having to obtain any form of remortgage.
If you are driving a car which is clearly excessively expensive for your reasonable needs then your Insolvency Practitioner may recommend that you sell your car and downsize to a more reasonable model. If you are using a standard car, often subject to finance, you will be able to continue as normal. The Bennett Jones team are experienced in this area and if they have any concerns about your car these will be explained to you before you commit yourself to an IVA.
Your IVA will be registered on your credit record and it will stay on the register for the period of your IVA and for up to 12 months after your IVA has concluded. The effect of your IVA on your credit rating will depend to some extent on what your credit rating was like before your commenced your IVA.
If you have asked anyone else to guarantee the payments of a loan your IVA will trigger a default of the loan agreement and this is likely to result in the lender contacting your guarantor and asking the guarantor to repay the loan. Your IVA is a private agreement between you and your creditors. You will be fully aware of the terms of your IVA agreement and its impact on your personal financial position. No one else will be affected by your IVA apart from the possible impact of the IVA on guarantors.
The only people who will know about your IVA are your Insolvency Practitioner and his team and your creditors. The record of you entering into an IVA will be registered on the Insolvency Register which is managed by the Insolvency Service a Government agency. This means that if anyone wishes to see if you have entered into an IVA they can search this register with details of your name. The terms of your IVA as agreed with your creditors are not made public and will remain confidential between you and your creditors.
“Joint IVAs” or “Interlocking IVAs” are IVAs that are proposed typically by 2 people who jointly owe debts to several creditors. In these circumstances it is sometimes more practical and fairer for all parties for IVAs to be proposed on the basis that the contributions into the IVAs should be paid into a central “pot”. The funds which are paid into this “pot” are then proposed to be distributed pro-rata between all creditors of each person’s IVA. Each individual must still comply with his or her obligations and maintain the payments as proposed for the IVAs to succeed. If one of the parties to an interlocking IVA defaults on their IVA payments this is likely to result in both of the interlocking IVAs failing.
Yes – IVAs were originally envisaged to be an alternative to Bankruptcy with a view of promoting an “Enterprise” culture. There are no restrictions on you becoming or continuing to be a company director if you are subject to an IVA. If you became bankrupt you would be prohibited from acting as a company director until you were discharged from bankruptcy.
All your debts should be mentioned and detailed in your IVA proposal. Your IVA will include all your unsecured debts other than debts such as Court Fines. If you owe money to members of your family or personal friends these debts would normally only be included in your IVA if there is enough money left after your other creditors and the costs of your IVA have been paid in full. For practical purposes, this is likely to mean that in most cases debts owed to friends and family will not be included in your IVA.
Secured debts such as mortgages and secured loans and car finance will not be included in your IVA as the mortgagee or secured lender will continue to be able to enforce payment by taking possession proceedings if payments are not made when they are due to be paid.
You will be able to include debts that are owed to the Department of Work and Pensions and HMRC for outstanding Income Tax and National Insurance Contributions. If you have incurred arrears of Council Tax and utility bills these can also be included in your IVA. The team at Bennett Jones will guide you and inform you whether it is realistic for your IVA to be approved in circumstances where such debts are a large percentage amount of the total of your unsecured debts.
Your IVA can include a CCJ, even if your creditors have obtained CCJs against you and they have commenced efforts to enforce payment by for example instructing bailiffs these debts will still be included in your IVA. Once your IVA has been approved all enforcement action by all of your creditors must cease. The Insolvency Act specifically provides that all enforcement actions must cease once your IVA has been approved.
I'm in a current IVA
Your IVA is likely to be in place for 5 years which is quite a long period of time. For most people who enter into IVAs due to being unable to repay credit card debts, personal loans and debts of a similar nature your IVA will be prepared following the guidelines of the IVA Protocol.
The protocol is a voluntary agreement, which provides a standard framework for dealing with consumer IVAs and applies to insolvency practitioners and creditors. Most major creditors have agreed to follow the terms of the protocol. The terms of the protocol include guidance on how creditors are expected to deal with payment problems in an IVA. Your IVA proposal will provide you with the opportunity to take payment breaks if your circumstances change and you need to miss one or more payments into your IVA. If your circumstances change on a permanent basis your IVA supervisor may need to seek a decision from your creditors authorising a long term reduction in the payments you had previously agreed to make. Provided that you have been honest and co-operated with your IVA supervisor you can expect your creditors to agree to help you and accept that your IVA payments must reduce.
Yes – there is no reason why should not change your car during your IVA. Your creditors understand that for many people it is important for them to have the use of a reliable car so that they can commute to work and continue to earn the income from which the IVA contributions are going to be paid. The only limitation on changing your car is the amount of new finance you are allowed to obtain for the purposes of acquiring a new car. Before you obtain additional credit you are expected to obtain the consent of your IVA Supervisor. Your IVA Supervisor will wish to make sure the additional credit you are taking on is affordable for you and also that it is not unreasonably expensive.
No – You are free to change jobs at any time during your IVA. If your income increases when you change your job you may need to inform your IVA Supervisor as this may affect the amount of your income contributions payable into your IVA when your IVA payments are reviewed at the next anniversary of your IVA. Your creditors will expect you to agree to increase your contributions by up to 50% of the increase in your net income but they will also allow you to deduct from this increased payment any additional living expenses or expenses associated with your new employment such as additional travel costs.
As a mortgage is a form of credit you will be expected to obtain the consent of your IVA Supervisor to a new mortgage. More importantly, you are likely to find that there are only a few mortgage lenders who are willing to agree to provide you with a mortgage before your IVA is concluded. If you find a mortgage lender who is happy to provide you with a mortgage then your IVA Supervisor is likely to agree to the mortgage proceeding provided that your income and expenditure budget still allows you sufficient money to be able to continue paying your agreed IVA contributions.
The IVA Protocol ]is a voluntary agreement, which provides a standard framework for dealing with consumer IVAs and applies to insolvency practitioners and creditors. Most major creditors have agreed to follow the terms of the protocol. The terms of the protocol include guidance on how creditors are expected to deal with payment problems in an IVA. Your IVA proposal will allow you to take payment breaks if your circumstances change and you need to miss one or more payments into your IVA. Payment breaks are available if your circumstances change unexpectedly. If you take a payment break, the missed payments will be added to the end of your IVA payments which will mean that your IVA will last longer than 60 months. If your circumstances change permanently and you are only able to afford to pay reduced income contributions your creditors will be invited to agree to vary the terms of your IVA to allow you to pay reduced contributions. In most cases, you will find that your creditors will agree to a variation of your IVA when the changes to your circumstances are explained to them.
As your IVA is a legally binding agreement between you and your creditors it is not possible to simply cancel your IVA. It is very important that you carefully consider your options before proceeding with your IVA. You need to ensure you understand the terms of your IVA before you proceed and if you have any questions or reservations, these need to be answered before your IVA proposal is signed and sent to your creditors.
If you fail to maintain the agreed payments into your IVA then your IVA Supervisor will have to take steps to terminate the IVA unless arrangements are made for the missed payments to be paid. A notice of breach of your IVA will be sent to you and if you do not respond to the notice the next step to be taken is for your IVA Supervisor to terminate your IVA. This is likely to mean that very little will have been paid to your creditors and once your IVA has ended your creditors will be able to take action against you again to try and enforce payments of their debts. If your circumstances have changed unexpectedly such as e.g. you are unable to continue working due to ill health and you cannot maintain payments of your agreed IVA contributions your creditors may agree to your IVA being concluded on the basis that you have substantially complied with your obligations.
Your IVA proposal will include provisions allowing for your IVA Supervisor to ask your creditors to consider decisions to vary the terms of your IVA. Your creditors recognise that unexpected events or changes in personal circumstances may occur which mean that unless your IVA is varied your IVA would fail.
If an unexpected event such as e.g. long term ill health occurs it is important that you inform your IVA Supervisor as soon as possible and discuss with your Supervisor how your IVA may continue on revised terms e.g. paying reduced income contributions. Your supervisor will help you and explain what needs to be done to obtain the agreement of your creditors to vary the terms of your IVA.
The Supervisor will invite your creditors to consider decisions to vary your IVA. 75% in value of your creditors who vote regarding the decisions must vote to agree to the proposed variation. In practice, the vast majority of proposed variations are approved.
Your IVA is likely to include a requirement for your IVA Supervisor to undertake a yearly review of your income and expenditure. Your IVA Supervisor has to send a report each year to your creditors updating them on the progress of your IVA. The purpose of your annual IVA review is to check for any changes in your income and your expenses so that this information can be included with your Supervisor’s report. If your income has increased and your expenses have not increased by a similar amount you may be requested to increase your IVA contributions. Please note however that any increase must be affordable for you and before any increase is agreed your Supervisor must ensure that you keep enough of your income to pay your reasonable living expenses. If your income has reduced or your expenses have increased which means that you may be struggling to afford to pay your IVA contributions we will work with you to help you continue your IVA with affordable monthly payments. If necessary we will explain changes in your circumstances to your creditors and invite them to agree to vary the terms of your IVA to ensure it reaches a successful conclusion. If you have any concerns about your income or your expenses and how these may affect your IVA contributions it is important that you contact your IVA Supervisory team who will be happy to help you and answer any questions you may have.
If you find there has been a change in your circumstances this may mean it is in everyone’s interests to look at varying the terms of your IVA so that your IVA finishes earlier than was originally expected. If a friend or relative who is aware of your financial difficulties has offered to provide you with financial assistance to clear your debts you may find that you are in a position to offer a single lump sum payment to be paid into your IVA in place of continuing to pay income contributions for the remainder of the 60 months originally agreed. This offer may be attractive to your creditors because they will receive payment earlier than if they had to wait for the full 60 months term of your IVA to receive all their dividends even if this means that your creditors don’t receive quite as much as they originally expected to receive.
Your IVA Supervisor will be happy to discuss with you any proposals you may wish to make to vary your IVA so that it concludes early. Your Supervisor will be able to advise you whether an offer to vary your IVA is likely to be accepted by your creditors. Provided that your offer is fair and reasonable your Supervisor will work with you to put forward your proposal for acceptance by your creditors.
When your IVA finishes you will receive a report from your IVA Supervisor confirming your IVA has been successfully concluded. Your IVA Supervisor will update the Insolvency Register which has a record of your IVA so that the Insolvency Register will show that your IVA has been successfully concluded. Your credit record will also be updated to show that your IVA has been concluded. After a further 12 months you can expect the record of your IVA will no longer be shown on your credit report. Your creditors will also receive the final report from your IVA Supervisor. The report will explain how much has been repaid to your creditors after the costs of your IVA have been paid. Your creditors