Do you have to be in arrears to qualify for an IVA?
Summary: This article looks to answer this question as well as clarify the criteria required to enter into an Individual Voluntary Arrangement (IVA).
The short answer is no, an individual does not necessarily have to be in arrears with their creditors in order to qualify for an IVA. If they are in arrears, this is not a problem, as the outstanding amount will often be included in the IVA itself.
Criteria of an IVA
Whilst a debtor does not have to be in arrears, they would need to be insolvent in order to qualify for an IVA. This is where an individual’s level of debt exceeds the level of income and assets owned resulting in a shortfall each month after the creditors have been paid. Therefore, while it is not compulsory to be in arrears, it is quite likely that they would be.
Type and level of debt
As a general rule of thumb, in order to qualify for an IVA, the debtor must have at least £12,000 of unsecured debt. This could include credit cards, unsecured bank loans, store cards, utility bill arrears and so on. Secured debt, such as mortgages cannot be included as the property would need to be sold. There must usually be at least 3 lines of debt that must be split between at least 2 creditors. For example, if an individual has bank loan, credit card and overdraft with the same bank, this would be considered 3 lines of debt, but it would only count as 1 creditor. Even here, advice should be sought as to whether an IVA is possible
In order to qualify for an IVA, the individual is required ideally to have at roughly £200 per month of disposable income (after all essential expenditure). Therefore it is reasonable to assume that the debtor would normally be employed in order to qualify. Those with self-employed status are not excluded from applying for an IVA, but there are additional complications, so it is worth seeking advice. When calculating the monthly amount of an IVA, only guaranteed regular income will usually be taken into account. For those that are unemployed, an IVA would not normally be a suitable option, and there may be a better alternative, such as a Debt Relief Order (DRO).
The individual must be a resident in England or Wales. For Scottish residents there is an equivalent of an IVA, known as a Trust Deed.