Individual Voluntary Arrangements (IVAs) might seem like a straight-forward solution to repaying debt, but it is important that you know the consequences before getting tied down.
IVAs are a form of debt management that works by freezing your debts for a fixed period of time. These agreements are legally binding, meaning neither you nor your creditor can back out of them. They are usually fixed on a 5-6 year period, within which you must commit to paying a monthly amount towards your debt. Once the period of time is over, any money you still owe will be cancelled.
A professional insolvency practitioner will arrange your IVA. While many practitioners are professional and committed to helping you out of debt, there are some which are less reliable. You may have seen adverts on daytime or late-night TV, promoting ‘easy solutions’ to paying off debts. These adverts are targeted at people who are more likely to be in financial trouble.
For some, an IVA could be the correct solution. But for many, what appears to be a straightforward solution, may leave you in more trouble than before.
Getting into an IVA should be a last resort for re-paying your debts. Unfortunately, there are cases where persuasive insolvency practitioners have encouraged people into an IVA without properly explaining the consequences. Ultimately, if you do not understand the drawbacks of an IVA, your financial independence and ability to borrow in the future could be impacted negatively.
IVAs are not free and come with a set-up fee. Your monthly repayments will include the amount owed to the lender, plus your payment fees to the insolvency practitioner. Many practitioners operate in order to gain a profit, and it is likely that the majority of the money you are paying will go to them rather than towards your debt.
IVAs also come with conditions that could affect your financial independence. You may be asked to sell your car or other personal items depending on how expensive they are. If you receive an unexpected lump of money, say you are gifted or inherit some cash, you may be required to pay all of it into your IVA. Another condition could be that you have to re-mortgage your home to cover some of the money you owe. It is important to know what the conditions of your Individual Voluntary Arrangement will cost you.
Your IVA could affect your ability to borrow for up to 12 years. The arrangement will be added to your credit history and will often make it very difficult to borrow. Even basic borrowing such as phone contracts and credit cards are unlikely to be accepted. After the IVA has ended, it stays on your credit file for 6 years. The IVA itself can last for 6 years, so this could be on your record for 12 years.
Simple answer is ‘no’.
If you have entered into an individual voluntary arrangement (IVA) then you are restricted to borrowing no more than £500 without obtaining permission from your insolvency practitioner.
When we consider affordability, we will look at other debts, repayments. You are very welcome to join us and save regularly, just a small amount every week or month soon build up into a useful fund for when you need it.
Citizens Advice has an article that explains the things to think about when considering an IVA
