How Do You Know if You Qualify for an IVA?
July 17, 2017
Guest article written by William Berry; an experienced personal debt adviser and Director at www.IVA.co.uk. For information on how IVAs work in Scotland, there is a similar process called a Trust Deed
If you have unmanageable debt, an Individual Voluntary Arrangement (IVA) helps you repay as much money as possible to creditors over an extended period of time. The term of an IVA is generally five years – it is a legally-binding agreement between yourself and your creditors during this time.
Not everyone will be eligible for an IVA, however. You must be able to prove that you cannot sustain repayments under the original contract with your lender or credit card provider, and that you do not own sufficient assets to repay them using a lump sum.
So what are some of the other aspects to think about when considering whether or not you might qualify?
Where you live
Individual Voluntary Arrangements are only available in England, Wales and Northern Ireland. Residents of Scotland can apply for their own version of an IVA – with the relevant process known as a Trust Deed.
Unsecured debts only
You can only include unsecured debt in an IVA. This might include credit cards, store cards, catalogue debt, personal loans, payday loans, and overdrafts. Mortgage repayments, or any additional debt secured on your home or any other asset, will not form part of this formal agreement with creditors.
Proportion of lenders agree
Before an IVA can go ahead, the proposal must receive the agreement of at least 75% of creditors (by value). If this is achieved, the creditors who voted against the IVA have no option but to accept the new arrangement. The addition of interest and charges is then stopped, and creditors should no longer contact you directly.
The appointed insolvency practitioner must demonstrate that creditor returns will be greater by entering an IVA, than if the bankruptcy route was chosen. With any insolvency procedure, creditor interests are placed to the fore, so if bankruptcy would bring greater returns, this may disqualify you from entering an IVA.
Debt is unmanageable
If you are unable to repay your unsecured debt under the normal contractual arrangements, it has become unmanageable. You must be able to demonstrate that your income is insufficient to pay back the money, and that you do not own assets of value that can be used in this process.
One of the main criteria for IVA eligibility is to have a regular and relatively predictable income. If this is the case, your creditors will have more confidence in the fact that the monthly repayments can be made, and that you will not fall back into arrears.
You must also have a certain amount of disposable income each month to qualify. IVAs are flexible, however, and you may be able to sell one or more of your assets if your income is on the low side. This would allow you to use the cash generated from sale to repay creditors, in lieu of higher monthly repayments from your income.
Although you are not obliged to own any assets to qualify for an IVA, if you do, the assets could be sold to repay part of your debt. This might encourage creditors, who were otherwise not in favour of the arrangement, to approve the IVA.
Provision of reliable financial information
Eligibility also relies on the provision of accurate and reliable financial information to the insolvency practitioner appointed to deal with your case. If this is later found to be incorrect, and you have deliberately sought to mislead the IP, it will invalidate the IVA and you could face further serious charges.
Your individual circumstances will dictate whether or not you qualify for an IVA. Clearly, each case is different, but your IP will guide you through the process and explain in detail the implications for all parties.
Your personal credit score plays an important part in securing new loans and credit, and can affect your financial life for better or worse. Lenders use the information in your credit file to determine whether you present a high risk of default, and if your credit score is low, you may find it difficult to […]
Credit unions offer a range of financial products including current accounts, savings accounts, and loans, and can be a good alternative to banks and building societies whilst also helping your cash flow. There are credit unions all around the UK, almost 100 of them operating in Scotland. They’re not always widely advertised, however, and although […]
It’s a worrying situation when you realise your outgoings exceed your income, and it can be difficult to prevent debt in this situation, but there are solid steps you can take to get back on track – you just need to act quickly. Increasing your income or reducing the money going out are essentially what […]
If you’ve lost your job, state benefits and tax credits can provide vital financial support to see you through this tough time and help you avoid taking on too much debt while you look for more work. As far as your old employment is concerned, it’s important that you check your final wage slip to […]
If you are a Scottish resident in financial difficulty, you may have entered into a Trust Deed in order to restructure debt repayments to creditors. A Trust Deed is a fixed voluntary agreement made between the debtor and creditor, with the help of a trustee. Debt is broken down into smaller, affordable instalments, typically lasting […]
A Debt Arrangement Scheme (DAS) is a government backed scheme which allows you to repay debt through contractual, monthly instalments without the threat of legal action and incurring penalties or interest. The scheme was established in 2004 for Scottish residents in debt, providing an alternative solution to sequestration, the Scottish equivalent of bankruptcy. A Debt […]