What happens in an IVA?

An IVA (Individual Voluntary Arrangement) can be a very good way of tackling unmanageable unsecured debts. But, as with any debt solution, there is a lot you’ll need to know before you can really decide whether it’s right for you.

You’ll need to talk to an expert – but in the meantime, here is a quick step-by-step guide to what you can expect from an IVA.

Before your IVA begins: the IVA proposal

Before your IVA can start, you and your Insolvency Practitioner (IP) will need to put together an IVA proposal that will detail the proposed terms of your IVA.

Your unsecured lenders will then be invited to vote for or against this proposal. For your IVA to become approved, it must receive approval from 75% of voting lenders (by debt value).

If it’s approved by enough of them, your IVA can begin.

During your IVA

Once your IVA has started, you will be legally protected against any further action from your lenders regarding your unsecured debts – as long as you uphold your side of the agreement, they won’t be able to demand payments on top of what they receive from your IVA payments, and they won’t be able to petition for your bankruptcy.

You’ll start making your agreed monthly payments (based on what you can afford alongside your other essential costs), from which the agreed amounts will be distributed between your lenders by your IP. In most cases, this lasts for five years, although IVAs can be longer or shorter than this depending on what your lenders are willing to agree – and how well you’re able to stick to the terms of the IVA.

Providing you keep up with your IVA, at the end of the agreement any remaining unsecured debt will be written off.

Other important things to remember

If you’re a homeowner, it’s possible that you will be expected to release some of the equity in your home in the 54th month (half way through the final year).

Also keep in mind that an IVA will have a significant impact on your credit rating, and it will also leave you with little money for anything other than your essential expenses until it has finished.