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IVA: Is it the right option for you?

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Are you weighing up whether an IVA is the right option for you? If you’re struggling to cope with debt and you’d rather avoid the bankruptcy route, another option may be the Individual Voluntary Arrangement. An IVA is an alternative to bankruptcy and can be a better option if your money problems are temporary and you want to try and save your home and assets – however they are not suitable for everyone. They only cover certain types of debt and are only suitable for those who have spare income of £100 a month; who owe money to two or more separate creditors and are unable to stick to an original agreement to repay debts.

What is a typical IVA?

Typically, IVAs include ‘non-priority’ debts such as bank and building society loans and overdrafts, credit cards, personal loans, store cards and catalogues. They can also include certain types of ‘priority’ debts such as council tax arrears, tax debts, electricity and gas debts.While secured loans, mortgage or rents arrears can be included in an IVA, the creditor will have to give their permission and this does not often happen. Debts that can’t be included are maintenance arrears ordered by a court, child support arrears, student loans and magistrate court fines.

Registering for an IVA

If you want to try the IVA route, you’ll need a registered insolvency practitioner who will help put together a plan for action, called a proposal. This is usually a qualified accountant or solicitor. The agreement proposes a repayment plan for you to pay back all or part of your debts over a fixed period of time, which is typically around five years. The practitioner will then prepare a report for the court and call a creditors meeting where creditors can vote on whether or not to accept the proposal. If enough vote in favour, the proposal is accepted. However, the creditors voting in favour must be jointly owed at least 75 per cent of your total debt.
Bankruptcy

How does it work?

You make your repayments to the insolvency practitioner who will normally deduct their fees and pass the rest on to your creditors. The practitioner is responsible for making sure all sides stick to the agreement and as long as you follow the terms of the plan, your creditors won’t be able to take any further action. An interim court order can be sought to prevent any action from creditors – such as declaring you bankrupt – while the proposal is being prepared. If you don’t stick to the arrangement however, the practitioner or any of your creditors can seek to have you declared bankrupt. For this reason, you must tell the practitioner straight away if your circumstances change. There’s a chance you could get your creditors to consider a new proposal.

What about your home?

IVAs are usually designed to protect your home. If you think you’re being asked to sell your home then you should seek advice straight away. Most agreements will require you to get your property valued in the final year of repayments. If there is equity, you typically need to raise a lump sum towards the IVA by re-mortgaging your home. This cash is paid into the IVA and your monthly contributions are reduced to take account of your higher mortgage repayments.
If contributions in the final year are less than £50 as a result of this, the IVA isn’t completed and doesn’t go into a final year. But, according to information from Citizens Advice, you shouldn’t have to sell your home to raise the lump sum. Instead, if you can’t remortgage, you will be asked to continue to pay the usual monthly IVA contributions for the 12 months.You should make sure your practitioner explains the lump sum element to you before you agree to anything.

What about future credit?

Details of your Individual Voluntary Arrangement are held on public record by the Insolvency Service. It will appear on the register until the agreement ends. Credit reference agencies keep a record of your IVA for six years and it may affect your ability to borrow money.
IVA is it the right option for you

Choosing an insolvency practitioner

There are many providers of IVAs and it can be difficult to decide which one to go with. Here are some tips to help you find the right one.
• Find a practitioner who offers a free first interview in case you choose not to go ahead.
• Take the information home to read in your own time before making a decision.
• Don’t be afraid to ask questions.
• Check how much the fees will cost and when you have to pay them. Some ask for fees up front, or you may be able to have the fees added to your IVA repayments to creditors.
It’s worth seeking advice from a support organisation, such as Citizens Advice, before you embark on any agreement. Its advisors can help you go through your options and identify an insolvency practitioner, should that be the course of action you decide upon.

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