An IVA is a legal contract, supervised by a Licensed Insolvency Practitioner, the purpose of which is to allow debtors to reach an agreement with their creditors in order to avoid bankruptcy.
In order for an IVA to be viable there are a number of conditions that must be met:
- A minimum of £15,000 unsecured debt
- A minimum of £200 a month available for payment into an IVA
- Have at least three or more debts to different organisations
- Have a regular income
Advantages of an IVA
- Once an IVA has been arranged and is in place, creditors cannot bring any further action, providing agreed payments are kept up.
- Allows a sole trader or partner to continue working in order to generate income towards creditor repayment.
- Debtor does not suffer the restrictions imposed by bankruptcy.
- The repayment proposals are drawn up by the debtor, are flexible and allow an accommodation of personal circumstances.
- Does not affect a person’s ability to hold public office.
- Unlike bankruptcy an IVA is not reported in local newspapers.
Disadvantages of an IVA
- If a debtor fails to fulfil the terms of the IVA, their home and assets may be at risk.
- If an IVA fails because a debtor has not met their obligations under it, it is likely that bankruptcy will follow.
- An IVA runs for five years as opposed to bankruptcy, which is three years.
Consumer Credit Counselling Service
The Consumer Credit Counselling Service (CCCS), an independent debt advice agency, has provided the following IVA statistical information from clients records:
- Average level of debt £59,936
- Average write off by lenders £34, 691 (58 percent)
- Average debtor’s payment £25,246 over five years, the equivalent of £421 a month
- Ninety-eight percent of IVA’s applied for were approved
(CCCS voluntary arrangement figures)
Protected Trust Deed Available in Scotland
In Scotland an IVA is not available. The Scottish equivalent is a Protected Trust Deed, legally binding in a similar way to the IVA, lasting a maximum of three years, after which the remaining debt will be written off. It may available to those with debts in excess of £8,000.
When a person defaults on a legal financial agreement and receives a default notice, that will remain on their credit file for six years. Therefore their credit score will be affected for the period of the IVA. However a person with an IVA in place will not be able to apply for unsecured credit during its lifetime (5 years). So unless another party, work or landlord perhaps, check the file it’s unlikely that credit scoring will be a problem.
The organisations listed below can help those considering an IVA or a Protected Trust Deed.
- Consumer Credit Counselling Service (CCCS)
- Credit Action
- UK Insolvency Helpline
- Citizens Advice Bureau
The information in this short article is not exhaustive and does not constitute financial advice.