Is your debt pile weighing you down? An Individual Voluntary Arrangement (IVA) gives you the opportunity to pay back what you can afford.

With an IVA, you consolidate all of your qualifying debts into one affordable monthly payment which is distributed between your creditors.

Once the IVA term has finished, any outstanding debts will be written off and you can start fresh with a clean slate.

Any interest, charges and penalties are frozen on your debt, so you will owe no more than you do currently.

IVA payments are agreed based on your individual circumstances. Without a consultation, it is difficult to say how much your monthly payments will be. But you should be left with enough spare income to lead a comfortable life.

An IVA can only be secured through a Licensed Insolvency Practitioner, who will act as a nominee and the supervisor of your IVA. Working with an Insolvency Practitioner, you will be able to negotiate manageable payment terms.

What does an IVA include

IVAs cover unsecured debts like personal loans, credit cards and overdrafts. Creditors agree to freeze debt interest and write off any remaining debt after the IVA term.

‘Priority debts’ like fines, student loan repayments, child maintenance payments, mortgage payments, secured loans and secured car finance deals can’t be included in an IVA.

How much are monthly payments

A Licensed Insolvency Practitioner will work closely with you to make sure you only repay what you can afford to.

Monthly payments are calculated based on your net disposable income, so the size of your debt does not necessarily matter. Net disposable income is the amount that you have left over after essential living expenses like food and housing have been subtracted from your take home pay and any benefits you might receive.

Although priority debts like fines, student loan payments and mortgages costs cannot be included directly in an IVA, they will be factored into any judgements about the affordability of your monthly payments.

Everybody has different circumstances, so the best way to judge what your repayments will be is to speak to Licensed Insolvency Practitioner for a consultation.

For a free consultation from Umbrella Insolvency, speak to a debt adviser today. Call: 0800 611 8888.

IVA costs and fees

An IVA allows you to make payments towards your debts based on what you can afford to pay. But there are additional costs and fees involved in setting up an IVA. These fees help pay for the services of the Insolvency Practitioner who administers your IVA.

IVA costs can seem high, but most Insolvency Practitioners will withdraw their fees from your monthly repayments, so you won’t pay any additional costs. And you should ultimately end up saving money on your total debt burden.

In return for your fees, the personal insolvency company will act as the legal nominee in your case, they will monitor your progress through the IVA and they will act as a general financial adviser to help you manage your money and keep up with repayments.

What happens if your circumstances change during an IVA

An IVA typically lasts for five years. Whether it is for better or worse, it is likely that your financial circumstances will change during that time.

If there is a permanent change in your financial circumstances, you should contact your Licensed Insolvency Practitioner immediately. If your financial circumstances change for the better, you may be obligated to pay more. If your financial situation worsens, your Insolvency Practitioner may be able to negotiate lower payments.

A permanent change in circumstances can include:

• You can no longer afford to make payments – If your income falls or your expenses increase and you can no longer afford to make repayments, you should contact you Insolvency Practitioner. The Insolvency Practitioner may be able to negotiate lower repayments, or it may be worth cancelling your IVA.
• Cash windfall – Most IVAs will contain a windfall clause. This means that if you receive any money unexpectedly, you will have to pay it into your IVA. A windfall can include things like a lottery win or unexpected inheritance money. If you don’t tell your Insolvency Practitioner about a windfall then you will have broken your arrangement and you could be breaking the law. The Insolvency Practitioner will find out about any windfalls via an annual review they conduct on your finances.
• Pensions – If you start claiming a pension during your IVA, this will be counted as income and you should tell your Insolvency Practitioner about it. If you think that you might start drawing a pension before the end of your IVA period, speak to your Insolvency Practitioner before the start of your IVA.
• Bonuses and commissions – You need to report any overtime bonus or commission where it is more than 10% of your normal take home pay. You will only have to pay half of the amount over 10% into your IVA, but you should tell your Insolvency Practitioner about the extra money within 14 days of receiving it.
• New debts or debts you have forgotten about – If you take on any new debts or remember a debt that you had forgotten before agreeing to an IVA, you should tell you Insolvency Practitioner immediately. Forgotten debts are quite common with deferred ‘buy now, pay later’ credit schemes. In these circumstances, your Insolvency Practitioner may be able to reduce your payments.
• Spare income – If you find yourself with more spare income than you had at the start of your IVA period then you should tell your Insolvency Practitioner. Any permanent reduction in expenses is likely to result in increased IVA payments.
• Move house – Housing costs form a significant part of your household expenses. You should tell your Insolvency Practitioner if you move house.
• Temporary change in circumstances – A change in circumstances may only be temporary. For example, if you have some kind of financial emergency. In these cases your Insolvency Practitioner may be able to arrange a break in payments which will be added to the end of your IVA term.

How to manage your money on an IVA

An IVA can be tough, because your spending will need to be restricted for the full IVA period.

You may no longer be able to afford luxuries like holidays, restaurant bills and expensive shopping trips. But you can rest easy in the knowledge that whatever you do buy is yours. And once the IVA period has lapsed, you will be on your way to debt freedom.

That said, there are some things that you can do to manage your money more effectively while you are paying for an IVA. Your Insolvency Practitioner will be able to advise you on how to manage your finances.

For a free IVA consultation from Umbrella Insolvency, speak to a debt adviser today. Call: 0800 611 8888.