What is an Individual Voluntary Arrangement?
An individual voluntary arrangement, or IVA, is an agreement reached between you and your creditors to pay part or all of the debts you owe over a certain period of time.
IVAs are designed to help you deal with unsecured debts like personal loans or credit card debt but will not apply to things like mortgages that are secured against your home.
This kind of debt solution is designed for those who are swamped in debt that they are simply unable to repay. It is a form of insolvency that is, arguably, less severe than declaring bankruptcy. The idea is that you extend the repayment term by reducing monthly repayments and eventually pay off all or most of what you owe.
How do they work?
To set up an IVA, you’ll need the services of an insolvency practitioner, or IP. The IP will often be an accountant or lawyer or other kind of licensed legal operative and will charge a fee for their services. The exact size of this fee can vary but typical costs could be around £5,000.
The insolvency practitioner will facilitate the setting up of the IVA, interacting with the creditors on your behalf throughout the course of the arrangement.
The IP will work out a monthly payment plan that will last around five years. Essentially you pay this money to your IP and they will then distribute it among your creditors in some way that they deem appropriate given how much you owe to each. In this sense, you are effectively combining all of your existing debt into one reduced repayment plan.
It is important to remember that depending on the IP you go with, they may keep a portion of what you pay each month as an additional fee.
For an IVA to be made official, you need a consensus from the creditors to whom you owe at least 75% of you debt. So if you owe a total of £50,000 to ten different creditors and £40,000 is owed to six of them, then agreement from those six means that the remaining four are legally obliged to agree to the terms as well.
Once the IVA is put in place officially, all parties are legally bound to stick to the terms.