What is an IVA
IVA stands for Individual Voluntary Agreement.
An Individual Voluntary Agreement or an IVA is an alternative to bankruptcy for people struggling with debt.
IVAs are designed for people with significant debt problems, to be eligible for an IVA you must have unsecured debts of £15,000 or more.
With an IVA, a formal arrangement between you and creditors will be made. The arrangement will see you making reduced payments to your creditors for a fixed period, usually five years, in order to pay off a percentage of what you owe. Once the five year period is over and you have made all of the agreed payments, your IVA will be successfully completed and your outstanding debt will be written off.
As an IVA is a legally binding agreement, it has to set up by a licensed professional, an Insolvency Practitioner.
Applying for an IVA
When applying for an IVA, one of our Financial Solutions Advisors will discuss your financial circumstances with you and determine how much you can realistically afford to pay off of your debts each month, this will be calculated and a repayment amount will be agreed with you. This information will be then passed to the Insolvency Practitioner who will draw up an IVA proposal to present to your creditors.
Your creditors will be called to a creditors meeting to vote either for or against the arrangement. For an IVA to be approved, 75% of your creditors in monetary value must vote for it.
IVA Fees
There are two kinds of fee involved in an IVA - the Nominee's fee and the Supervisor's fees. Here's an example of the fees and payments on a typical client's IVA:
| Typical monthly repayments (60 months/five years) | £250 |
| Total paid by client (including fees) | £15,000 |
| Total unsecured debt written off on completion | £45,000 (75%) |
| Nominee's fee | £1,704 |
| Supervisor's fees | £3149 |
| Supervisor's costs | £290 |
Example based on a client, with approx. £60,000 of unsecured debts who completes a 5-year IVA and has no equity in any property. Fees shown include VAT where applicable.
As a formal insolvency procedure, an IVA is a legally binding agreement with your unsecured creditors and requires an Insolvency Practitioner (known as an IP) to act on your behalf.
Nominee's fee
This is a fixed fee that will cover the work that goes into setting up your IVA:
- Setting up your IVA proposal. This is the document which must be approved by enough of your creditors (75%) for your IVA to start. It defines the proposed terms of the IVA: how much you'd pay, what each creditor would receive.
- Creditors meeting. This is when your creditors will formally approve, reject, or request changes to your IVA proposal.
- Changes. If any changes are requested to your IVA proposal, your IP will advise you on whether you should accept those changes - or consider a different approach to your debt problems.
Supervisor's fees
Supervisor's fees cover the ongoing supervision and maintenance of your IVA all the way through, this means:
- Your Account Manager will deal with any day-to-day issues that arise, to ensure your IVA runs to plan.
- Your IP will carry out regular reviews of your IVA and address issues that come up - if, for instance, your financial situation deteriorates, and you need your IP to arrange an IVA variation (a legally binding change to the terms of your IVA, designed to help you bring the IVA to a successful conclusion). You must speak to your account manager should this scenario arise.
After the nominee's fee has been paid, a percentage of each monthly payment will be taken as Supervisor's fees, as detailed in your IVA proposal.
Keeping up with your monthly payments in an IVA is essential, if you fail to make payments, your IVA may fail, leaving you liable for the remaining balance and any costs already incurred. IVAs do provide some flexibility, you may for example, be allowed to take a small 'break' from your payments if you come up against unexpected costs.
Trust Deed fees
Throughout your Trust Deed (typically 3 years), you will pay a flat fee every month. Example of the fees and payments on a Trust Deed:
| Total repaid by individual | £9,000 |
| Total unsecured debt written off at completion | £21,000 (70%) |
| Typical monthly payments (36 months/3 years) | £250 |
| Fee element included in monthly payment (36 months/3 years) | £110 |
| Trustee disbursements | £140 |
Example with approx. £30,000 of unsecured debts completing a 3-year Trust Deed and has no equity in any property. Fees above include VAT where applicable.
The fee will be taken out of your monthly payments thus not affecting the amount you pay each month.
- Your monthly payment is dependent on the value of your assets and on how much you can afford to pay per month once you've accounted for all your essential expenditure (home, food, energy, and so on).
- Your monthly fee will be determined before your Trust Deed commences, when your IP draws up your Trust Deed proposal. This is the document which details the proposed terms of your Trust Deed - unless a certain number of your creditors object to the terms, your Trust Deed will become protected by law.
Your monthly payments will be collected in a 'creditor’s pot' after the flat fee has been deducted from this pot; your creditors will receive their payment.
The fee covers the costs involved in setting up your Trust Deed. The fees also pay for the ongoing supervision and maintenance of your Trust Deed until completion:
- You're Account Manager oversees the running of your Trust Deed, as well as providing help and advice and tackling any issues that may come up.
- Your IP will be there to assist if necessary in circumstances such as: your income reducing (or your essential costs increasing), your IP may be able to arrange a Trust Deed variation (a legally binding change to the terms that takes your new circumstances into account).
It is essential that payments to your Trust Deed are honoured, or it could fail - in which case you'd be liable for the remaining balance and any costs already incurred.