IVA

Definition

The acronym IVA stands for individual voluntary agreement. It’s a term used to describe an arrangement between someone who is struggling to repay their debt and the creditors.

What is an Individual Voluntary Arrangement?

If your financial circumstances change across the term of a finance agreement, you may be unable to meet the repayment plan set in place. If you have more than one finance agreement, this can quickly start to add up and you will end up with your debt growing. An option that is available to those matching a certain criteria is an Individual Voluntary Arrangement or IVA.

An IVA is an agreement set up between the creditor – in most cases the finance provider or lender – and the debitor – the customer. It takes a look at the amount of money owed and the income of the debitor and works out a plan to start paying off your debt. It can range from giving the creditor a portion of your salary each month, to agreeing to pay them an amount in one big chunk.

When should I consider an IVA?

If you are struggling to make repayments on your finance agreements and are worried about your debt getting out of control, than an IVA might be a solution for you. In all cases, you should speak to an impartial financial advisor. There are several charities available that can give you information on the options available to you.

To qualify for an IVA, you will need to put 75% of your debt into the agreement. The creditors you owe money must also agree to the IVA. You will also need to contact an insolvency practitioner to prepare the arrangement for you. This can be expensive, with some charging fees of £5,000. However, they will often be able to factor this fee into the arrangement too.

An IVA can last 5-6 years, and you will have to stick to a strict budget and repayment plan or face having the agreement cancelled.

What are the benefits of an IVA?

An IVA can help you consolidate all your debts into a manageable amount, meaning you can get control of your finances and, hopefully, ensure you do not end up in too much debt. It can give you peace of mind knowing that you have a way out of the situation.

What are the risks of an IVA?

An IVA reduces the amount of financial freedom you have. This is as part of the arrangement between you and the creditor to ensure that they receive at least some of the money owed. If you come into any money, through a bonus at work or a gift in a Will, then that will have to go towards your debt.

You are also limited to the amount of money you can borrow, up to a maximum of £500. You may also have to sell off some valuable possessions and if you have an item purchased on finance, you are likely to have to return it to the company you purchased it from. An IVA can also have negative effects on your job if you work in a financial or legal capacity. Speak to a financial advisor before you agree to any IVA, just to make sure it’s correct for you.