How it Works
IVAs are unique in the UK debt management industry. Besides bankruptcy, no other debt management solution is so comprehensively backed by legislation to protect the rights of both the debtor and creditor so debts can be tackled for their mutual benefit.
Because of this, there is a defined procedure that is followed for every IVA that is applied for.
*DRO – Debt Relief Order also available & Trust Deed if in Scotland
Deciding if the IVA is right for you
Debt can make you feel pretty desperate to find a way to escape it, and while IVAs can seem attractive they are not suitable for everyone. Your unique circumstances may make another debt management solution more appropriate, but until you talk through your options with someone in the know you won’t know what that might be.
Insolvency practitioners have the most comprehensive and in-depth knowledge about IVAs, and ideally you need to talk to one of them about your debt. They may need to see some of your debt paperwork to evaluate your financial position and what your options are. It’s tempting to skip this step and just go for it – a lot of people do – but imagine how upsetting it could be if your decision ends up costing your more time and money paying off the debt than was ever needed in the first place.
Assets are evaluated
Part of the process of an IVA is a rough asset evaluation, and this is the point it comes in. This is where your possessions over and above what you use on a daily basis are briefly assessed to see if their sale could release some money to your creditors.
This is a very important part of the set up process of an IVA. If you have assets – for example shares, jewelry, antiques or expensive cars – your creditors will want you to sell them to release the cash to them. In fact, this may be a key point in the agreement you have with your creditors, otherwise they may turn down your application if they perceive you are refusing to part with a valuable asset.
An agreement proposal is drawn up
Once your IP has evaluated your circumstances and believes an IVA is the right debt management solution for you, you give them the go-ahead start the discussions with your creditors and come to an agreement on what you will pay them.
To stop a creditor taking action against you while your IVA is being set up, your IP will seek an ‘Interim Order’ at the county court. They will then begin drawing up a formal proposal for your creditors with your offer of payment. This will require you to compile a household budget showing the surplus income you intend to use to pay them every month. This won’t include any debt payments and ideally should be more than £175 a month.
The creditors say yes! You have your IVA…
Now work really starts. Once your creditors have agreed your IP will want any assets valued and mentioned in the creditors’ proposal to be sold and the money paid across. New bank accounts will be set up for your wages to be paid into and payments to creditors to come from. All charges, penalties and interest on your debts will be frozen.
Every month you pay a fixed sum to your IP, who in turn removes their fees from the payment and distributes the remainder to your creditors according to the terms of the IVA agreement.
The last payment is made and it’s all done! Now what?
Now you get on with your life while your IP gets all the paperwork complete and works on getting your IVA discharged. Until the discharge papers come through you are still legally bound under the terms of your IVA, although your payments will have stopped. Any remaining debt balances you owe will be written off, and your IP will pursue this until they have the settlement documentation to prove it.
Once your discharge papers come through, you are officially debt-free!