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The IVA process

21 January2010

An IVA (Individual Voluntary Arrangement) can help people who are facing unmanageable levels of unsecured debt. It`s a legally binding debt solution that involves repaying as much of the debt as you can afford over a set time period (usually five years), after which your lenders will write off the remaining debt.

Two `downsides` of this are that your credit rating will be significantly affected, and that you will need to commit to payments which will leave you with little spare income for the duration of the IVA - but for many people this is still preferable to other options, such as bankruptcy.

If you decide to enter into an IVA, you will need to go through an application process. This begins with calling a debt adviser (or an Insolvency Practitioner - IP) to establish whether it is the right option for your circumstances.

How is an IVA set up?

Step 1: the IVA proposal

If an Insolvency Practitioner has decided that an IVA is the best option for you - and you decide to go ahead with it - you will work with them to put together an IVA proposal. This proposal sets out to your lenders the terms of the IVA, such as how much you can afford to pay each month, and how long you will make payments for.

Your lenders will be given a period of at least 14 days to consider these terms, then vote for or against the proposal. For the IVA to go ahead, 75% of voting lenders (by debt value*) must approve the terms. However, they may wish to request some changes to the terms first.

Step 2: the creditors meeting

At the end of the set period of time, the creditors meeting will take place: not a face-to-face meeting these days, but a period of time in which you and your IP will make yourselves available to discuss any queries or suggested alterations to the terms that your lenders may raise.

Step 3: the IVA begins

If you get the required 75% approval, your IVA can begin. Interest on the debts will be frozen and you will start making regular payments to your IP, who will subsequently distribute the agreed amounts to each of your lenders accordingly.

Once the IVA is in place, all lenders involved are bound by the terms, and will not be able to pursue you any further for the debts (unless you fail to stick to the terms of the IVA).

A typical IVA involves making monthly payments for five years, although this isn`t always the case. Your IVA will probably also require you to contribute a portion of any additional income received (including bonuses and pay rises) in that time. It`s also common for homeowners to be required to release some of the equity in their home to put towards their IVA in its final year.

Step 4: the IVA is complete

If you successfully abide by the terms for the duration of the IVA, the IVA will reach a successful completion and you will be legally debt-free (as far as your unsecured debt is concerned - any secured debt you have, like a mortgage, will not be written off).

The IVA will be removed from your credit history six years after it starts (so, in most cases, one year after it has finished).

For more information on IVAs and whether an IVA could be right for you, click here or call one of our expert debt advisers on 0800 195 2911.

* by debt value - lenders who are (between them) owed 75% or more of the debt must approve the terms for the IVA to go ahead.

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