# What You Need to Know About IVAs

When you have debt problems, there are a few ways out and the one you choose will be decided mainly by the amount you owe, as well as your income and the assets you have in your possession.

As well as debt relief orders (DROs) and debt management plans (DMPs) there’s are also the individual voluntary arrangement (IVA). An IVA is a contract – a legal agreement – between creditors and debtors that allows the debtor to make achievable regular repayments to settle the debt.

### How it all works

An IVA is devised and managed by a qualified insolvency practitioner (IP) The IP works out an affordable repayment plan and then acts as the go-between for the borrower and their creditors to make sure both parties are happy. It’s a balancing act between the creditors, who want the amount repaid ASAP and the borrower, who wants a realistic payment each month.

An IVA can only go through if 75% of the creditors approve of the IP’s proposed arrangement, but in most cases, they do agree. Once the IVA has been approved, monthly payments go to the IP, who then divides the money up between each creditor.

### Can everyone qualify for an IVA?

Not everyone can apply for an IVA. They’re available in England, Wales and Northern Ireland but not in Scotland and there are other criteria too. The person must have at least three creditors and have debts totaling more than £15,000.

### Is an IVA a good idea?

An IVA is a good idea for some borrowers, especially if they have several creditors and simply can’t cope with the repayments. The agreement is legally binding, which means that creditors have to abide by it and not take any further legal action against the borrower as long as the repayments are being made.

IVAs are also time-limited, so the repayments only need to be made for as long as it lasts. If the borrower knows they can maintain the repayments, all should be well. With an IVA, once the time period ends, the debt is discharged, even if there are some amounts left over. The IVA is also removed from the Individual Insolvency Register three months after it’s ended.

### What are the downsides?

An IVA costs money to set up in many cases, because it’s administered by a qualified IP. There can be set-up costs and handling fees for each payment.

If the borrower can’t make their payments, the IVA could be deemed a failure and the next step is often bankruptcy.

For some types of professional an IVA can stop them working in their field. Lawyers, for example, could be disbarred if they have an IVA.

Personal pensions count as income, so they can be used towards the repayments.

While the IVA is running, the borrower needs written permission from the IP to borrow more than £500 unless the credit is to be used for utilities.

### Do IVAs affect credit reports?

Yes; an IVA will stay on a credit report for six years after it began. When it’s completed, this information will be noted on the report and the IP will send a completion certificate to the insolvency service, which will then tell the credit agencies.

Even when your IVA is finished, it may still discourage lenders from offering you credit as it shows that you’ve had credit problems in the past. You’ll need to work hard to improve your credit score for a while to be able to borrow money again.

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