Who can apply for an IVA?

Insolvency

Anyone can apply for an IVA if they are insolvent. To be insolvent, an individual’s debt would have to be larger than the value of all of their assets, eg home, savings and/or investments. If a property is not owned, an individual can still be insolvent in that monthly contractual payments are unaffordable after normal living expenses have been paid. An IVA is an alternative to bankruptcy which may be undertaken if an individual’s creditors believe they will receive more from an IVA than bankruptcy.

Level of debt

In order to qualify for an IVA, debts need to exceed £12,000, split between two or more creditors, with at least 3 lines of credit. For example, an overdraft and a credit card with the same bank would be considered 1 creditor but 2 lines of credit. Only unsecured debt can be included, and ALL debt must be accounted for as preferential treatment of debt is not allowed in an IVA. Furthermore, Inland Revenue (tax) debt can be included as well as arrears with utilities from previously occupied properties (existing or live utility bills cannot be included).

Employment status

Individuals are usually either employed or self employed. (Those on pensions or receiving DLA may qualify). For the self employed, the process is slightly more complicated and so those individuals should seek advice from their Insolvency Practitioner. As a rule of thumb, only guaranteed income will be taken into consideration, though commission and bonuses may be included in the calculations if it can be proved they are regular. If partner’s expenses are included in the calculations (ie shared rent/mortgage) then their earnings will also need to be included.

Expenditure

Guidelines are in place for expenditures allowed under the IVA. A debt consultant will be able to advice in this matter. All reasonable expenses are acceptable. Unusual expenses may be allowed if they can be justified, for example, if an individual’s job requires them to be well presented at all times, it may be a higher clothing allowance may be given.

Next steps

If an individual finds themselves in a position that they feel they may need an IVA, the best course of action would be to speak to an insolvency specialist. Fees for setting up and supervising the IVA are all built into the monthly repayments.

With an IVA in place, provided the monthly repayments are met, an individual could become debt free at a fixed point in the future (usually 5 years).

Interested in doing an IVA Find out how to apply for an iva?