Am I eligible for an IVA?

1 July 2009

If your debts have become unmanageable, an IVA (Individual Voluntary Arrangement) could help you to clear your debts and avoid bankruptcy. It is a legally binding agreement between you and your creditors in which you will repay an agreed percentage of your debts (based on how much you can afford), and write off the rest.

Before you can enter into an IVA, you will work with an Insolvency Practitioner (IP) to draw up an IVA proposal, detailing the proposed terms of the IVA. This will then be sent to your lenders for approval. Lenders accounting for at least 75% of your total debt must approve the terms before your IVA can go ahead.

How do I know if I`m eligible for an IVA?

There are some criteria that you will have to meet before you can be considered for an IVA. You must be able to demonstrate that you cannot afford to repay your debts in full within a reasonable period of time; you must prove that you can`t afford your existing monthly payments; and (in most cases) you must prove that you have enough disposable income to keep up with regular payments towards an IVA.

In general, people who enter into an IVA tend to have more than £15,000 of debt, and the minimum monthly payment to an IVA is usually around £200. However, this can vary from person to person, as each case will be treated individually.

What are the `rules` once I`ve entered into an IVA?

Most IVAs have the following requirements:

• You will make regular monthly payments for five years (60 months)
• You may be expected to give up some of any increase in income received during your IVA (including bonuses and general pay rises)
• If you`re a homeowner, you may be expected to release some of the equity in your home in the 54th month of the IVA (half way through the final year).

Your IP may be able to negotiate different terms - for example, a shorter or longer repayment period, or no contribution of additional earnings.

Note that an IVA will stay on your credit rating for six years from the time it starts, so you may find that obtaining credit in the first year after it finishes is harder and/or more expensive - even though any restrictions on lending imposed during the IVA have finished.

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