All you need to know about IVA debt solutions

By Cara Wiltshire, Legal Assistant at Woodstock Legal Services

What is an IVA?

An individual voluntary agreement, known as an ‘IVA,’ for short, is a type of debt solution allowing people to pay off their outstanding debts. It requires a legal agreement between the debtor and the creditor for the IVA to be able to go ahead.

The IVA Process

The debtor will approach an IVA company of their choice and present them with their financial situation. The debtor must make sure that they are happy with the IVA company to act on their behalf. The debt advisor will work out how much the debtor is able to offer to the creditor and discuss whether the IVA is likely to be accepted. Once the debtor and advisor come to an agreement on this, they will draft up a statement of affairs, which will be passed onto the Company Insolvency Practitioner. They will then present the debtor’s case to the creditors involved.

A creditors meeting will then be held, where all the creditors who are owed money by the debtor will be given a chance to vote for or against the IVA proposal. If the majority of the creditors at the meeting vote in agreement with the IVA, the IVA will then go ahead and be bound by all the creditors who voted, despite whether they voted for or against the proposal.

The IVA will then be allowed to go ahead, and payments will start being divided between each creditor.

Advantages of using an IVA to repay debts

There are multiple benefits to entering an IVA for those that need help paying off debts. For instance, once an agreement is in place, the debts are frozen, and the debtor can no longer be chased by their creditors for payments outside of the IVA. Leading on from this, it also means that no one can take legal action against them whilst they are involved in an IVA, as the creditors are legally prevented from pursuing the debt further through the courts.

Additionally, the IVA is tailored to what is best for the debtor’s circumstances and they will only be made to pay back what they can afford each month. Lastly, if they have multiple creditors to whom they owe money, an IVA may be a better option as it allows them to pay multiple people at once.

Disadvantages of using an IVA

The downside of entering into an IVA is that they can have a significant impact on the debtor’s ability to secure credit and can take years to pay off.

For example, once they enter an IVA, a record of the IVA will be placed onto the debtor’s credit file, which will in turn cause significant damage to their credit rating and may make it more difficult to get accepted for a mortgage or tenancy. Additionally, the debtor will have to live on a restrictive budget because if they miss even one payment, it will be marked as a breach. Most importantly, if they miss multiple payments the agreement will fail, and the debtor will have to find another way of paying off their outstanding debts.

There are risks with everything so it’s advisable to ensure anyone considering entering into an IVA agreement seek independent advice on whether it is best suited to them and their financial situation.