IVA key information and fees

A real IVA case

The following example is a genuine Customer case and a useful illustration to show how unsecured debt may be reduced through an IVA over a typical term of 5 years.

Frequently Asked IVA Questions:

Click on the questions below to reveal the answer.

Am I eligible for an IVA?

To begin with, you need to be classified as insolvent. This means that you’re unable to pay back your debts to your lenders.Next, you’re debts will need to total at least £12,000. This money needs to be in the form of unsecured debts, like credit cards, store cards and personal loans – you can’t use an IVA to pay off mortgage debt or other secured loans.This money needs to be owed to a number of people in order to qualify for an IVA – if you just owe the money to a single creditor there are other ways of coping with your debt.You also need to be able to show that you have a steady stream of income so that you can make your IVA repayments, which can start from £150 a month.

What sorts of people enter into IVAs?

Simply people who are struggling to or cannot pay their debts. If you cannot pay your debts as they fall due, you are insolvent and the law gives you two alternatives: bankruptcy or an IVA.

How will an IVA affect my daily spending?

During the course of an IVA we will provide you with a budget to help you manage your income and expenditure which is agreed with yourself and your creditors. This budget may have some restrictions including allowences for living essentials.

What are the fees?

IVA fees are always based on individual circumstances and are calculated by looking at your income, monthly expenditure, and level of debt and how much you would pay over the course of an IVA.The fees we take are agreed with your creditors and adhere to the IVA protocol which was agreed between creditors, Insolvency Practitioners and Regulators. It’s important to remember that all IVA providers follow these guidelines including the charities.Debt Free Direct will not ask you for upfront fees, nor will we ask you to pay additional fees. You make one monthly payment in an IVA – that covers all our fees.There are two types of fees in an IVA – A nominee’s fee and a supervisor’s fee.

• The nominee’s fee is for setting up and agreeing the IVA with you and your creditors.
• The supervisor’s fee covers the management of the IVA until it’s completed.

See ‘What do the fees cover?’ below for an example of a typical case
which shows the debt level, amount repaid and fees in the IVA.

What do the fees cover?

The fees you pay in the IVA cover the following;

• Agreeing a personal monthly budget with you.
• Drafting and preparing your legally binding proposal.
• Holding a creditors meeting and presenting your case. (Please note,
  if your IVA is not accepted, you will not have to pay any fees).
• Dedicated customer care team on hand to help with any queries / issues you may have at any time throughout your IVA.
• Conducting annual reviews with you to ensure your agreement is running as planned.
• Distributing your payments to your creditors.
• Making any changes to your IVA should your circumstances change.
• Working with your creditors on an annual basis to ensure that your IVA runs smoothly.

IVA Case

• Mrs Smith had debts of £44,000.
• We negotiated an IVA with her creditors.
• Now Mrs Smith pays £269 per month.
• Over the course of the IVA Mrs Smith will pay back £16,140 in total
  meaning she will repay 37% of her debt and the remaining 63% is written
  off.
• The £16,140 she will repay includes all our fees.
• Based on her circumstances, the fees we will be paid are £3,340 over the 5 years of the IVA.
• The £269 she pays monthly is the only payment she makes.

What else should I know about IVA fees?

• We will never ask you for upfront fees.
• Your single monthly payment in an IVA covers all our fees.
• The nominee’s fees are taken, typically, in the first 5 months of
  the arrangement. The supervisor’s fees are spread over 5 years.
• We will always tell you what fees are involved and how they are calculated before you commit to an IVA.
• Our fees are agreed with your creditors.
• All IVA providers (including the charities) follow the same IVA protocol when charging fees.

What are the advantages and disadvantages of an IVA?

There are a number of advantages in taking an IVA however in order to make an informed decision be aware of the disadvantages too.Key advantages include:

• An IVA provides an affordable monthly payment plan
• Ends creditor chasing
• Freezes interest by law

Disadvantages include:

• You won’t be granted any credit whilst in an IVA
• Your credit rating will be affected for 12 months after the IVA
• Default on payments can result in bankruptcy

View further information on the advantages and disadvantages of an IVA here.

Will my home be safe?

You will not have to sell your property when in an Individual Voluntary Arrangement unless that’s what you want to do. If you do own your home, you need to take reasonable steps at the end of the five year period to make any equity available to people you owe money to (usually by re-mortgaging). Please note, this may attract a higher interest rate. This requirement is also true for bankruptcy, except that bankruptcy often means you do have to sell your home.

What if people I owe money to don’t agree with the IVA?

At least 75% of votes (in value) at a meeting of people you owe money to (your creditors) must be in favour of your proposal. People you owe money to can suggest modifications to your IVA proposal and you can choose whether to accept them or not.If people you owe money to don’t vote in favor of you starting an IVA you will still have the option of an informal arrangement, or bankruptcy.

What if I change my mind?

You are under no obligation to proceed with any of the solutions we advise on. Should you change your mind after signing the proposal, you are provided with a cooling off period of 14 days under the Consumer Protection (Distance Selling) Regulations 2000.Please note that an IVA is a legally binding arrangement and cannot be cancelled once a meeting of creditors has been accepted. Failure to maintain payments towards your IVA could result in the termination of your IVA.

How will it affect my credit rating?

Your credit rating will be affected. Credit reference agencies such as Experian, Equifax and Call Credit maintain records of your credit accounts. Failure to maintain contractual payments towards any debts will result in a default notice being made on your credit file. These notices will remain on your credit file for 6 years (unless the creditor agrees to remove them prior to this) and may affect your ability to obtain credit.

Are there any other options?

You could get all of the people you owe money to to reschedule your debts, but this may be difficult if you have a lot of people you owe money to. Some banks and building societies have debt counselors, and you could try speaking to them. Bear in mind that unlike an IVA, an informal arrangement offers no guarantees. One or more of the people you owe money to could change their mind at a later date, or charge you higher rates of interest later if your circumstances improve. You may also take longer to fully address your debt.