Whilst it may seem that an Individual Voluntary Agreement (IVA) is an ideal solution for those
with more than £12,000 of unsecured debt that are struggling to pay, it is important to remember
that, as with any legally binding agreement, there are a few considerations to be made prior to
making an application.
Legally binding Contract
Firstly, by its very nature, an IVA is a legally binding agreement between Debtor and Creditor.
As such there will be various terms and conditions that the Debtor should be familiar with.
Should the Debtor find themselves in a position that they are unable to pay back the agreed
monthly amounts for any reason, then they would be in breach of the terms and the IVA may be
nullified. Should this occur, then the Debtor could be back at square one, irrespective of the
amount paid through the IVA. An IVA has inflexible payment terms (except in exceptional circumstances),
so it is important that the monthly repayments are kept.
Another condition of an IVA is that the Debtor is required to undertake an annual review. This will
include any financial statements, payslips and so on. Should it become apparent that the debtor has
had an increase in income then the monthly repayments may be increased accordingly. Furthermore,
any windfalls, such as a lottery win or inheritance, need to be declared immediately. Depending on
the amount, the Debtor may be expected to submit some, or the entire amount to the IVA, though this
could have the advantage of reducing the length of the IVA.
Credit and Credit record
Once in an IVA, a debtor will be required to get permission from their IVA supervisor should they
wish to apply for any further credit. If for any reason credit is taken without the supervisor’s
knowledge and approval, this would also be considered a breach of the terms of the IVA and may result
in its failure. An IVA is also noted on the credit record of the debtor, and remains there for 6 years
from its start, so even after it has finished, it could be harder to obtain credit. Unlike bankruptcy,
where an individual will be reported in the local paper, when undertaking an IVA, the Debtor will be
listed in the governments insolvency register.
If a debtor is a home owner, it is important to bear in mind that if there is equity in the house, then some
of it may need to be released in order to repay some of the amount outstanding. This will usually be taken
in to consideration towards the end of the IVA period. If the house is jointly owned, then usually, only the
debtors’ share of equity will be included.
Whilst these are the main points to consider, an IVA is a personal agreement, therefore there may be other
terms that are specific to the individual.