Everything about the IVA forum (FAQ)

Frequently asked questions about IVA & IVA forum:

Table of Contents

Q. What is an IVA?

A. A lot has been written about Individual Voluntary Arrangements over the last few years and the question we probably get asked more than any other is what is an IVA?

An Individual Voluntary Arrangement (IVA) is a legally binding agreement between you and the people you owe money to. IVAs were originally intended as a mechanism for dealing with ‘business generated’ personal insolvency, although in recent years, they’ve become increasingly popular with individuals. IVA forum

In return for paying back what you can realistically afford each month (after living costs and essential expenditure has been accounted for), usually for a period of five years (you may also be required to release any equity that is available in your home – only if you can afford to), your creditors will agree to freeze interest and write off any outstanding debts. An IVA will also prevent your creditors from taking any further action against you (including petitioning for your bankruptcy) and will allow you to keep your home. IVA forum

If you’ve been researching ‘what is an IVA?’ then the chances are that you’ve already encountered some unrealistic claims about what IVAs can actually achieve. Some organisations claim that IVAs can write off up to 90% of your debt. Whilst this can happen in extremely rare cases, in reality, an IVA will write off between 50% and 60% of an average debt of just under £60,000. Such a typical IVA would mean a reduction in the money owed to between £25,000 and £30,000. How much debt is written off depends on your circumstances.

IVAs are only suitable for people with larger debts (typically over £15,000) and you need to be sure you can stick to a planned budget for five years.

Before entering into an IVA, you also need to be aware that fees are involved. However, as these are paid by your creditors to your Insolvency Practitioner (the person that manages the IVA process on your behalf) out of the money that you contribute each month, the reality is that they won’t affect you. Essentially, your creditors are agreeing to accept less money back in order to pay your IP. The only exceptions to this are if you have a significant windfall during the IVA and are able to pay back your debts in full or if your IVA fails. In these circumstances, your creditors may require you to contribute an amount to cover fees on top of your debts.

IVAs are a lifeline for many tens of thousands of people in the UK each year. However, entering an IVA has significant professional and legal implications, which must be fully understood before any decision is made.

Q. Where can I find an impartial IVA forum?

A. An IVA forum is a great place to get second opinions and technical advice on your IVA. However, just keep in mind (particularly if you’re considering entering an IVA) that many of the IVA forum users are actually Insolvency Practitioners that want your business. You can read more about IVAs and whether they are suitable for your situation in our IVA section. Debt Advice Foundation is a registered UK charity offering free, confidential support and advice on any aspect of debt, including IVAs. If you need to talk to someone about debt, please call the charity’s helpline on 0800 043 40 50 to speak to an adviser. IVA forum

Q. What happens after my IVA is finished? IVA forum

A. When you have made your final payment and successfully completed your Individual Voluntary Arrangement, you will be issued a certificate of completion by your Insolvency Practitioner, who will also inform your creditors. A copy of the completion certificate is also passed to the Insolvency Service so that the Insolvency Register can be updated and your details removed. Credit reference agencies will need to be updated, which is your responsibility. Notifying them that your IVA has been completed successfully is an important step in improving your credit rating. You can read more about IVAs and whether they are suitable for your situation in our IVA section.

Q. What is a business IVA? IVA forum

A. Business IVA is a legal agreement between you and your unsecured creditors where you will pay back what you can reasonably afford each month, typically for a period of five years and in return, your creditors will agree to freeze interest, stop any impeding legal actions and write off the balance of any unpaid debts. The legal status of your business determines which type of business IVA is appropriate for your situation. If you are a Sole Trader (self-employed), then any unsecured debts that have been generated as a result of trading can be included in an IVA; they are treated no differently from your unsecured personal debts. IVAs were in fact, originally intended as a mechanism for dealing with ‘business generated’ personal insolvency rather than consumer debt, which is what they’ve more recently become synonymous with. If the business is a partnership or limited liability company then a Partnership Voluntary Arrangement (PVA) or Company Voluntary Arrangement (CVA) may be appropriate. You must be able to demonstrate that the VA offers more value to the creditors than liquidation, that the business model and future estimated earnings are viable and that you have sufficient working capital to continue trading. Unfortunately, whilst the charity can offer IVA advice to Sole Traders, it cannot give advice on PVAs or CVAs.

Q. What’s the best IVA on the market? IVA forum

A. There’s actually no such thing as a best IVA. Every organisation, whether they’re a charity or a commercial business has to adhere to the same legislation and rules when drafting an IVA proposal. Most of these rules, which may vary over time, are put in place by creditors, who ultimately decide whether the IVA will pass or fail.

However, there are important factors that you must be aware of when choosing your IVA provider: IVA forum

Make sure you speak to an Advisor that doesn’t charge for their advice.
Make sure the Advisor doesn’t ask you for any fees before you enter into the IVA. If your creditors don’t pass your IVA proposal then you risk losing that money.
Is the Advisor manipulating your expenditure in order to make you fit the IVA criteria? Whilst this might sound like a good idea, you have to be able to live comfortably on the amount you agree to for five years. IVAs where this is the case often end up failing.
Has the Advisor fully explained your alternatives, your other options, enabling you to make an informed choice.
Have they explained to you the likelihood of creditor support, the modifications that may be requested and the consequence this may have.

Q. What are the implications of an IVA remortgage? IVA forum

A. Approaching the end of the IVA term (typically six months before the final payment is due), your creditors may ask you to release your share of any interest in the equity of your property (the value of property less any debt secured against it) if it is reasonable to do so. Typically, any IVA remortgage will need to satisfy the following conditions:

The amount of debt secured against your property does not exceed 85% of the current market value (this is called the Loan To Value). This means that you will not be expected to obtain a remortgage for more than 85% of the current market rate.
The monthly repayment cost of the remortgage is affordable for the client (any increase in mortgage payment will be subtracted from your monthly IVA payment and will not exceed 50% of the payment into the IVA).
The amount of equity you release will not exceed the amount of unsecured debt you owe (excluding statutory interest).
The IVA remortgage term will not extend beyond the latter of the debtor’s state retirement age or the existing mortgage term.
The amount of money introduced into the arrangement will be net of the professional or redemption costs (i.e. you won’t have to find this money separately).
The available equity ([current market value of house * 85% LTV] – outstanding secured debts) at the date of review exceeds £5k (anything below this value is considered de minimis and won’t need to be released).

Your IVA payments will be proportionately reduced to account for any increase in mortgage repayments.

If you have equity in your home but are unable to remortgage then your Supervisor may ask you to continue with your IVA payments for another twelve months. These payments should not exceed the value of the equity you were unable to release. This will all be set out in your proposal before you agree to enter into an IVA.

Q. What happens if I don’t keep up the payments on my IVA? IVA forum

A. What happens if you don’t keep up the payments on your IVA depends on why you haven’t. If you are able to demonstrate that you have legitimate reasons for not being able to continue to make the agreed monthly payments (such as having your working hours reduced), your Insolvency Practitioner (IP) can approach your creditors to vary the amount you pay each month or the length of the IVA. IVA forum

However, if your creditors don’t agree that your reasons are valid then the IVA will fail and the IP may initiate bankruptcy proceedings. You may also be liable for any fees paid by your creditors to your IP up to that point and your creditors will once again be entitled to pursue you for the outstanding debt. Many IVA proposals state that three missed payments in any twelve-month period are an automatic fail. IVA forum

It’s worth noting, however, that over 90% of variations are successful – your creditors don’t want to see your IVA fail any more than you do as the alternative is usually a lower return for them in Bankruptcy. IVA forum

Q. How does the IVA process work? IVA forum

A. The IVA process can be broken down into six stages. It usually takes about six weeks from start to finish, although this often depends on how quickly you can send the necessary supporting evidence to your advisor. IVA forum

Make sure an IVA is the most appropriate solution for your financial circumstances by speaking to an impartial advisor. The advisor should examine your income, expenditure, assets and debts in detail in order to calculate how much you can realistically afford to offer your creditors each month (see how much will I have to pay into my IVA) and determine whether your creditors are likely to approve your IVA (see who can enter into an IVA). The advisor should also explain all of your other options to you, such as Bankruptcy, at this point.
If an IVA is appropriate for your circumstances then a Statement of Affairs is drafted based on the information you’ve already provided. The Statement of Affairs is the consolidated view of your current financial circumstances (assets and liabilities) and forms the basis of your IVA proposal. The proposal (which is usually drawn up by an Insolvency Practitioner acting as Nominee) will also contain creditor details as well as a breakdown of your income and expenditure and any supporting evidence that you may be required to provide (pay slips, bank statements etc). At this stage, your Nominee may also apply for an Interim Order, which is a legal injunction preventing your creditors from taking further action against you until your IVA proposal has been considered.
Assuming that you’re happy with the proposal, it is then distributed to your creditors as well as the local county court and the Insolvency Service. The proposal document contains a proposed date (not earlier than 14 days after the distribution of the proposal) on which your IVA application will be considered; this is known as the Meeting of Creditors (in practice, most creditors use voting agents to act on their behalf). Modifications (changes) to your proposal can be requested at the meeting, although in practice this will usually happen in the days and weeks prior to the meeting taking place. If your creditors require more time to consider your proposal or require more information then your meeting can be adjourned.
At the meeting, your creditors will vote on whether to accept or reject your proposal. 75% of the votes (by value of debt) must be in favour of the proposal for it to be approved. If this happens, all of your unsecured creditors, whether they voted yes, no or didn’t vote at all, are legally obliged to abide by the terms of the IVA agreement.
Once approved, all the relevant parties are informed and a Supervisor is appointed (usually this is the same Insolvency Practitioner that acted as Nominee) to monitor monthly payments and make sure you are abiding by the terms of the IVA.
As long as you continue to make payments (see what happens if I don’t keep up payments on my IVA) for the agreed length of time (typically five years), you will be discharged from your legal liabilities on completion of your IVA.

Q. What is the IVA register? IVA forum

A. The IVA register is part of the Insolvency Register, which is a public record maintained by the Insolvency Service. The Insolvency register contains details of the following:

Individual Voluntary Arrangements
Fast-Track Voluntary Arrangements
Bankruptcy Orders (current or those that have ended in the last 3 months)
Bankruptcy Restriction Orders or Undertakings
Debt Relief Orders (current or those that have ended in the last 3 months)
Debt Relief Restriction Orders or Undertakings

The IVA register (Insolvency Register), which covers England and Wales, can be searched online at the Insolvency Service website or at your local official receiver’s office. The information listed varies slightly according to the type of insolvency process undertaken but will generally include name, address, date of birth, occupation and details of the arrangement.

Q. What does an IVA cost?

A. The IVA cost is covered by your monthly IVA payments and any equity that you agree to release. Essentially, the people you owe money to are agreeing to receive less back from you so that your IP can be paid for their work. Even if your IP decided to charge nothing at all, all it would mean is that your creditors would receive more back; your monthly payment wouldn’t change. Your monthly IVA payment will be calculated by subtracting all of your monthly essential expenditure (travel costs, food, utilities, insurance etc) and priority debt arrears payments (mortgage arrears, Council Tax arrears, court fine arrears etc) from your monthly incomings (wages, benefits, investments etc). You’ll never be asked to pay more than this calculation shows you can afford, no matter how much your monthly contracted repayments are.

There are some circumstances that you need to be aware of, however, where you may be required to contribute to the IVA fees (see Who pays the IVA fees?). If you receive a large amount of money during your IVA, which means you are able to repay your debts in full or if your IVA fails then you will not be able to recover any fees paid up to that point.

You’ll have to stick to the monthly payments that you’ve agreed to for the next five years so you need to be realistic about how much you can live on each month. Be wary of IVA companies that claim they can get your IVA passed by altering your expenditure to unrealistic levels or that charge upfront fees (as you may not be able to recover them if your creditors don’t agree to your IVA proposal).

Q. How much will I have to pay into my IVA?

A. An IVA is essentially a legally negotiated compromise between you and the people you owe money to. In return for paying back what you can realistically afford each month (as well as releasing any available equity at the end of the IVA term – only if you can afford to), your creditors will agree to freeze interest and write off the balance of any unpaid debts. You will not be asked to make any additional payments to cover fees. The IVA fees are part of the reduced monthly payments you make to your creditors. Your creditors are effectively agreeing to receive a lower amount back so that your IP can be paid for their work. Even if your IP decided to charge nothing at all, it wouldn’t benefit you as the difference would go to your creditors.

Whilst most people entering an IVA will never be affected by IVA fees, there are some exceptional circumstances where you may be required to cover the cost of the fees. If you benefit from a windfall during the term of your IVA, which enables you to repay your debts in full or if your IVA fails then it is unlikely that you will be able to recover any fees you have paid up to that point. The amount you can afford to pay back to your creditors each month is calculated by subtracting essential living costs (such as food, clothes and travel costs) and priority debt arrears payments (such as Council Tax arrears, mortgage arrears and rent arrears) from your income.

The purpose of the calculation is to show your creditors how much you have available to offer them at the end of every month after all your living costs have been taken into account. No matter how much your contracted monthly payments are, you’ll only ever be asked to pay what this calculation shows you can afford. Be wary of companies altering your monthly expenditure in order to get your IVA proposal passed. You’ll have to stick to the agreed budget for the next five years so you need to be realistic about how much you can live on each month.

Q. Who pays the IVA fees?

A. IVA fees are based on a standard fee structure that everyone in the industry must adhere to. They are paid out of the money that you contribute to the IVA each month. Essentially, your creditors are agreeing to accept less money back in order to pay your IP (this is why there’s no such thing as a cheaper or better IVA; even if your IP charged lower fees, the difference would go to your creditors, not to you). In principle, IVA fees are relatively straightforward, although it gets a little more complicated if you own assets such as a property. In the following example, we’re going to assume that you don’t own a home or any other assets to make things easier.

Your Insolvency Practitioner (IP) calculates how much money you have coming into the household and how much you need each month to cover essential living costs and priority debt arrears (things that must be paid first such as Council Tax). At this stage, they ignore your unsecured credit commitments (personal loans, credit cards etc) as these are the debts that the IVA will tackle. If we assume you bring home £2,000 per month in wages and you need £1,750 for living costs (food, travel to work, clothes etc), it means you have £250 available each month to offer to your unsecured creditors. It doesn’t matter how much your contracted unsecured monthly debt repayments are, this is the amount your IP has calculated you can afford to repay and assuming your creditors agree to your proposal, this is the only amount you’ll ever be asked to pay.

If you owed £25,000, you’d be discharged from your liabilities after 5 years (60 months), having repaid only £15,000 (60 months x £250). Here’s the tricky bit; so what did you actually pay in fees? Very broadly (not accounting for VAT), the first 5 payments you make go to your IP for setting up your IVA. After that, the IP will get 15% of your monthly repayments and your creditors will get 85%. So in this example, your IP will have received £3,312.50 and your creditors will have received £11,687.5, which added together comes to the £15,000 total repayment we calculated above. This means that your creditors will receive around 80% of the total amount you pay into your IVA with your IP receiving the other 20%.

Because you’ve paid back £10,000 less than your original debt, some people argue that there is no fee involved (how can you have a negative fee?). Even though it is likely that you’ll significantly reduce the amount that you’ll pay back in an IVA, it should still be explained to you how the IP will get paid for two important reasons:

If your IVA fails, you’ll be back to square one having paid fees (at that point, the only option realistically available to you will be bankruptcy).
If your circumstances change during the IVA and you are able to repay your debt in full (for example winning the lottery, receiving PPI compensation or seeing the equity in your home appreciate sharply), then you will be liable for paying the fees in addition to the debt.

As mentioned above, having assets (such as a property) adds an extra layer of complication. If you do own your own home, you will be asked to remortgage (usually six months before the conclusion of the IVA) and release any available equity. You will only be asked to do this if you have more than 15% equity in your property (banks have traditionally not lent money in excess of 85% of the property’s value), if the amount being released was above a de minimis value (i.e. your IP usually wouldn’t expect you to remortgage to release less than £5,000) and if your IP believes you can afford the repayments (see IVA Remortgage).

For example, if your home is worth £100,000 and your outstanding mortgage is £75,000, you would be asked to remortgage up to £85,000, of which £10,000 fewer arrangement fees would go to your creditors. This would still leave you with £15,000 equity and most importantly, you’d still own your home, which is a big advantage of IVAs over bankruptcy.

Whilst IVAs can be a lifeline for many with large, unaffordable debts, it’s worth remembering that they are not for everyone. That’s why it’s so important that you seek impartial advice before entering any agreements.

Q. What if my creditors don’t agree to my IVA proposal?

A. What happens if your creditors don’t agree to your IVA proposal depends on their reasons for not agreeing. If your Insolvency Practitioner believes your proposal is salvageable by making adjustments that you’re happy with, then your meeting can be adjourned and your proposal redrafted. If your creditors’ expectations are so far away from your own that there’s little chance of ever finding a reasonable compromise then you do still have options.

Your Advisor should have already considered debt restructuring solutions such as remortgage before considering an IVA. If they have, the options that remain are to consider Bankruptcy or, if you believe your financial circumstances are going to materially improve in the comings months and you have significant assets that you wish to protect, to enter into a long term non-fee charging Debt Management Plan (Informal Arrangement).

If you are going to consider entering into an Informal Arrangement under these circumstances, it’s important that you are comfortable with the length of time it will take to repay your debts in full as there’s no guarantee that your circumstances will improve.

Q. Will an IVA affect my credit rating?

A. An IVA will affect your credit rating as it will stay on your credit file for six years after the date of commencement (typically one year after your IVA has been completed).

However, this needs to be put into context:

If you’re in serious financial difficulty then the chances are that your credit rating is already impaired and will only continue to get worse as default notices are issued against you.
All debt solutions (other than debt restructuring through remortgaging – if you have equity available in your home) will adversely impact your credit rating because you are reneging on your contractual repayments.
If your financial situation is so severe that it requires you to enter an IVA, then obtaining additional credit will only make your situation worse.
Your monthly IVA payments will take all of your monthly livings costs into account, which means you will not need to obtain any additional credit (other than in exceptional circumstances).

The important thing to remember is that the consequences of not dealing with your debt problem properly are much more severe than impairing your ability to take out further credit when you’re in severe financial difficulty.

Q. Where can I get UK IVA advice?

A. Although England, Wales, Northern Ireland and Scotland are all part of the UK & NI, Scotland is actually served by separate (although similar) insolvency legislation.

UK IVA is only available in England, Wales and Northern Ireland. Scotland has a similar (although by no means identical) process called Protected Trust Deed, which is a legally binding agreement between you and your creditors where you will pay back what you can realistically afford each month, usually for a period of three years.

Q. Does an IVA cover all of my debts?

A. Priority debts and priority debt arrears cannot be included in your IVA. Payments to these debts are factored into your monthly household expenditure allowance. Priority debts include:

Mortgages and secured loans
Rent & property service charges
Current utility bills
Current service providers
Hire purchase payments
Student Loans
Child Maintenance
Council Tax (current year if not in arrears)
Court fines

Debts that can be included in your IVA are as follows:

Unsecured debts (overdrafts, credit cards, store cards, charge cards, catalogues, pay day loans, unsecured loans, doorstep loans, credit unions)
Unsecured debts that have a CCJ or attachment of earnings in place
Arrears from utility supplies from previous properties, previous suppliers e.g. gas, electricity, water
Arrears from service providers from previous properties, previous suppliers e.g. digital TV, mobile phones, landlines
Debts that were previously secured against an asset that has been repossessed – shortfalls on vehicle HP and Properties
Debts to family and friends.
HM Revenue and Customs VAT, PAYE, Self assessed tax, National Insurance
Council Tax (previous years and current year if in arrears)

Q. Who can enter into an IVA?

A. If you were to ask an IVA advisor ‘who can enter into an IVA’, more often than not, they’ll tell you that you must owe £15,000 or more in unsecured debts, have three or more creditors and that you can afford to pay £200 towards your unsecured debts each month.

The truth is that none of these is legal criteria for entering into an IVA. They are actually general rules of thumb that the industry uses to determine whether or not your creditors are likely to accept your IVA proposal or not.

The main criteria that your creditors will use to evaluate your IVA proposal are:

The return to your creditors in an IVA beats the return in Bankruptcy.
The amount of money you’re pledging to return to your creditors over the life of the IVA must achieve the minimum creditor dividend (this is amount of money the creditor receives as a percentage of the total amount of debt that is owed). As a general rule, this is around 15%, although it can vary depending on factors such as the size of debt, the return in Bankruptcy and how quickly the creditors will see their money.
You must be a resident of England, Wales or Northern Ireland.

Q. Where can I get free IVA help?

A. Free IVA help is available from any registered debt charity such as Debt Advice Foundation.

However, you still need to be aware of the fees that you will need to pay if you did decide to enter an IVA. Every organisation, whether they’re a charity or a commercial business gets paid a fee for arranging an IVA. IVA fees are based on a standard industry fee structure, which means the same fees will be levied no matter which organisation you choose to arrange your IVA for you.

However, there are important cost factors that you must be aware of when choosing your IVA provider:

Does the organisation charge for its advice? Unfortunately, many commercial debt advice companies still continue with this practice.
Does the organisation want you to pay money upfront, before you enter into the IVA? By agreeing to do this, you are risking losing the money if your creditors don’t agree to your IVA.
Does the Advisor work for a not-for-profit organisation or charity? If they don’t, can you be sure that an IVA is in your best interests or are you being advised to enter an IVA because the organisation will receive a fee?

Q. Who can enter into an IVA?

The main criteria that your creditors will use to evaluate your IVA proposal are:

The return to your creditors in an IVA beats the return in Bankruptcy.
The amount of money you’re pledging to return to your creditors over the life of the IVA must achieve the minimum creditor dividend (this is amount of money the creditor receives as a percentage of the total amount of debt that is owed). As a general rule, this is around 15%, although it can vary depending on factors such as the size of debt, the return in Bankruptcy and how quickly the creditors will see their money.
You must be a resident of England, Wales or Northern Ireland.

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