How does an IVA affect your life?
October 19, 2018
An Individual Voluntary Arrangement (IVA) is a personal insolvency procedure available in England, Northern Ireland, and Wales. It generally lasts for five or six years, and could help if you’re struggling to repay your unsecured creditors.
You make a single, affordable repayment each month, and any debts remaining at the end of the process are written off. But how would an IVA impact your life during its term and afterwards? Here we look at different areas that could be affected.
An IVA appears on your credit file for six years from the date it comes into force. This is the case even if the procedure ends after five years. Your credit rating will be adversely affected by the IVA and make it difficult to borrow or secure credit, but once it’s ended you can start to rebuild your credit file and regain financial control.
When you’re in an IVA you’ll need to follow a strict budget for the whole term. Although this sounds difficult, you’ll probably find that sticking to a budget is easier when you’re not making numerous payments to creditors – only a single repayment that’s been carefully calculated for affordability.
An IVA could infringe the terms of your employment contract, as it may be a condition that you don’t become insolvent. This is likely to be the case if you work in the area of law or accounting, or in the police force or military. It’s worthwhile checking your employment contract whatever your line of work, however, for any clauses regarding insolvency.
Hire purchase agreements
If you’re paying for a car or other purchase via HP, the monthly instalment will be included in the initial budget as a priority payment. This is because when you’re in an HP agreement you don’t own the item until the final payment has been made.
Windfall payments such as lottery wins and inheritances are paid into the IVA, but this doesn’t necessarily shorten the IVA term. It depends on individual circumstances, but the windfall may be used to pay more money back to creditors than was included in the original proposal.
Your insolvency is recorded in the Individual Insolvency Register which is publicly viewable, but unless someone specifically searches the register for your name they’re unlikely to become aware that you’re insolvent.
If you’re a homeowner it’s unlikely you’ll need to sell your property because you’re in an IVA, but you may be required to release equity in it towards the end of the term. Should you be unable to remortgage, the term may be extended for another year to increase creditor returns.
If your bank is a creditor included in the IVA, you’ll need to open a new bank account as they’re able to ‘offset’ the debt by taking money directly from an existing account. Don’t forget that other debts may also be linked to your bank, as banking institutions often own a number of financial service providers such as credit card companies
If you run a business
Whether you’re a sole trader or a company director, an IVA doesn’t affect your ability to trade. This contrasts with bankruptcy which disallows entering into official positions and directorship.
All in all, an IVA can significantly change your life for the better – with no creditor pressure and a more organised financial life, you’re free to focus on becoming debt-free. UK Debt helps people experiencing debt problems to proactively deal with the situation.
If you would like more tailored information about IVAs and whether they would be suitable in your circumstances, please contact one of our licensed insolvency practitioners to arrange a free consultation.
Banks and other financial institutions have an automatic right to offset the credit balances held in their customers’ bank accounts […]
Joint and several liability is a term used in relation to personal debt when the borrowing is in joint names. […]
A personal guarantee is a formal written assurance that makes the guarantor personally liable for a debt if a default […]