How Does an IVA Work?

The concepts and specifics of debt management can seem overwhelming and complicated at perhaps the worst time – when someone in debt is panicking and looking for a way out. With Bankruptcy, Debt Management Plans (DMPs), Debt Relief Orders and Individual Voluntary Arrangements (IVAs) all as possible options, it can be difficult to comprehend how they all work, the different outcomes and therefore what’s best given an individual’s particular debt situation.

With IVAs especially, people often ask the question “how does an IVA work?”

The first step is for the debtor to assess their debt situation and to get in touch with a debt advisor. Based on the specifics of their particular situation (e.g. how much they owe, how much they earn, etc.), a competent debt advisor should be able to advise whether an IVA is the right course of action, or if another type of debt settlement would perhaps be a better option. Typically, an IVA is suitable for someone who owes more than £15,000 in debt to multiple creditors and who has assets that they do not wish to lose (e.g. their home).

Once the details have been ironed out, the advisor will write an IVA proposal to give to the creditors, which will be sent to them before the creditors meeting. Of course, before sending it, the advisor should run it by the debtor, who will have to be happy with it as well. At the subsequent creditors meeting, the creditors will have the chance to ask for modifications to be made to the IVA, if at all necessary. Ultimately, if at least 75% of the creditors agree with the terms of the proposed IVA, then its application will be successful – making the proposal legally binding – and the payments can begin.

The payments are monthly, lasting a total of 60 months (5 years), the amount depending on what the debtor can realistically afford to pay on a monthly basis – based on their income – as well as what was agreed via the IVA proposal with the creditors. Because the IVA is legally bound, creditors are not allowed to take legal action against the debtor while the IVA is running, unless the IVA fails for any reason.

When the final payment has been made on the 60th month, the IVA is considered completed, with any remaining debt written off. This leaves the individual legally debt-free, although the IVA will still appear on their credit history for a further year.

This article detailing how an IVA works was written by The IVA Service, who provide IVA help to people in the UK who are in debt. For more information, visit our website: www.IVA-Service.co.uk