IVA restrictions

Individual Voluntary Agreements (IVAs) have fast become a very popular option for those in significant financial difficulties with unsecured debt. They are often a more attractive option than other alternatives such as Bankruptcy as fewer restrictions are imposed.

However, whilst they may offer slightly more freedom than Bankruptcy, there are still areas that require consideration if an individual is considering an IVA.

Credit records

Anyone who enters an IVA will also have the details noted on their credit record for 6 years. This will be from the beginning of the IVA, so assuming it lasts for 5 years, then it will continue to be recorded for a further 12 months. However, this could have longer term implications as credit providers will often ask if an applicant has ever been in an IVA or alternative solution. While it may not prevent credit being offered, it could have an affect on the rate of interest that the company charges, for example a mortgage.

Insolvency Register

Anyone entering an IVA will have their details recorded in the Insolvency Register. This is a publicly accessible document that contains details of the individuals name, address, date of birth and current occupation. It will also provide details of the IVA arrangement and the Insolvency Practitioner supervising it. These details will remain on the register for the duration of the IVA.

Credit and Store Cards

As all eligible debt must be included within an IVA, existing credit and store cards may not be used, which is logical as the creditor is unlikely to lend further to an individual who is already having trouble repaying their existing debt, especially as they are likely to see maybe only half of that debt repaid.

Loans whilst in an IVA

If an individual in an IVA finds they need to seek further credit for any reason, then the first port of call should be their IVA Supervisor who will be able to advice on the best course of action. Under the IVA contract, an individual may be able to obtain a loan of up to £500 without the permission of the IVA Supervisor. It should also be noted that the interest rates may be much higher than someone with a clean credit record.

Bank Accounts

It is advisable to open up a basic bank account with a provider that is not one of the existing creditors. The reason being that in some cases, if money is owed, the bank could apply the 'right to offset' which effectively means they can take money from the bank account without the permission of the account holder to help repay the debt.

Home Owners

While an IVA does not require an individual to sell their home (and is often the reason it is preferred to Bankruptcy), depending on the level of equity in the property, it may need to be remortgaged to release some of that equity. This will usually be in the 54th month of the IVA and the owner will always be left with at least 15% of his/her net worth in the property. Where the net worth is less than £5000, then there will usually be no requirement to remortgage.