Managing debt can be a very complicated thing to do. It’s emotionally distressing, and of course, managing your money can be a real challenge when you’re juggling debt payments with your everyday expenses. If you have a lot of debt, it can seem impossible to see a light at the end of the tunnel. If you’re in debt to a large amount, you could consider an IVA.
An IVA, or Individual Voluntary Arrangement, is a legally binding agreement that combines your existing multiple debt repayments into one monthly payment which is then distributed between your creditors.
You can’t set up an IVA on your own and will need to enlist an Insolvency Practitioner to help you. When the IVA is set up, this person will supervise it. Bear in mind, you will have to pay for it; an IVA can cost between £5000 and £8000.
Any amount of debt can be included in an IVA, although most creditors won’t agree to one if your debts are lower than £10,000. To be able to get one, you will need a steady income to continue paying towards the debts throughout the entire period of the IVA. Before deciding if this is for you, take some time to weigh up the IVA pros and cons.
Which Debts Can Be Included in an IVA?
Not all dents can be brought into an IVA. The main ones that can be included are overdrafts, personal loans, credit cards, store cards, and catalogue debts. You can also include tax or VAT that you owe to HMRC, but this debt will be given priority above your other debts when the payment is distributed. Mortgages, secured loans, rent, council tax arrears, court or speeding fines, or child support arrears cannot be included.
An Insolvency Practitioner will work out your available budget to arrange the IVA. They will take into account any debts that cannot be included and your essential living expenses into account so you only pay what you can afford to towards your debts.
If you don’t have any equity or are in negative equity (you owe more than the property is worth), a creditor may insist that your home is revalued in the fourth year of your IVA. After that, you might have to give up a proportion of the equity that you have.
How To Set Up An IVA
You need an Insolvency Practitioner to do this for you. They will look at all your assets and income to work out how much you can pay towards debt in a lump sum, and how much you can afford every month after that.
Use the free Debt Remedy tool from StepChange to help you decide if an IVA would suit you. You can also go to a debt advice charity to help you to decide and recommend a local Insolvency Practitioner who will be able to assist you.
Depending on your level of debt and your ability to pay it off, an IVA can help you to get your finances back under control.