What’s an IVA?
An IVA, or Individual Voluntary Arrangement, is a legally binding contract that serves as a structured plan for managing your debts. This plan is agreed upon between you and the people you owe money to, known as creditors.
Unlike mere casual agreements, an IVA is legally enforced and must be set up by a qualified professional, generally an Insolvency Practitioner (IP). The essence of an IVA is to make monthly repayments to your creditors over a period, usually lasting around five years. After this period, any remaining debt is usually written off.
Having an IVA is like a double-edged sword. While it provides a structured way to manage your debts, it comes with rigid guidelines about borrowing additional funds. Why? Because the goal is to help you become debt-free, not dig a deeper hole.
Are You Eligible for an IVA?
To explore the possibility of an IVA as a debt solution, you must meet several key criteria. Here’s a rundown of what you need to know:
- Disposable Income – You must have a certain amount of disposable income at the end of each month. This shows you can make regular payments towards your IVA.
- Debt Level – Generally, you should owe at least a few thousand pounds to consider an IVA. The more you owe, the more likely an IVA is suitable for your situation.
- Multiple Creditors – Although not a strict requirement, IVAs are commonly used when you have debts with more than one creditor.
- UK Residence – You need to be a resident of the UK to enter an IVA.
- Insolvency Practitioner (IP) – An IVA must be set up and managed by a qualified and licensed Insolvency Practitioner.
Even with low disposable income, an upfront lump sum might help you qualify for an IVA. However, relying solely on benefits makes it tough to secure one. IVA fees typically fold into monthly payments. For tailored advice, consult a licensed Insolvency Practitioner.
Can I Get a Loan During an IVA?
Borrowing more than £500 while you’re under an IVA is a no-go unless you get approval from your insolvency practitioner (IP). But yes, you can borrow an amount of £500 or below without needing permission from your IP. This professional is in charge of setting up and overseeing your IVA.
This rule applies to all kinds of loans, whether it’s from a bank or your Uncle Bob. If you’re facing an emergency and need more than £500, you must talk to your IP.
They’ll ask you to explain why you need the money and look at your options. If it makes sense, they’ll say yes. Breaking this rule is a bad idea. You risk messing up your IVA and even legal trouble.
How Does IVA Affect My Credit Score?
The truth is, an IVA will sit on your credit report for six years, starting from the day you get it. This makes it harder to get credit or loans, even if your IP says it’s okay.
Lenders can look you up on the Individual Insolvency Register, which keeps track of all IVAs. So, finding a lender who’ll approve your loan can be tricky.
Traditional lenders such as banks are likely to reject your application. Your best option is to turn to specialised lenders who cater to individuals with poor credit.
You can find them through brokers who have access to different lending options. If you’re interested in unlocking this opportunity, simply fill out this quick form. We’ll connect you with whole-of-market brokers who can introduce you to the right specialist lenders for your situation.
Pro Tip
Before you jump into an IVA, remember it’s a long-term commitment with lasting effects on your job, home, and future credit. So, actively assess all angles to make an informed decision. Your credit rating will also take a hit, so choose wisely.
Can I Settle My IVA Early?
Yes, you can close out your IVA before its official end date. Typically, after you’ve been in the IVA for about three years, you can look into getting a loan to finish off your IVA payments ahead of schedule. Doing this not only sets you free from the IVA but also helps you start rebuilding your credit.
To finalize the early settlement, propose a lump-sum payment to your creditors. After making this payment, you’ll no longer have to worry about future monthly instalments. However, keep the following in mind:
- Your credit history will show the IVA for six years from its start date.
- Initially, securing additional loans or credit may still be challenging.
- You’ll need to repay the loan used to close the IVA early.
If you’re considering an early settlement, inform your Insolvency Practitioner (IP). If they think your creditors will likely accept the offer, they’ll schedule a special meeting to discuss the changes.
Be transparent about the source of your lump sum—your creditors will need assurance it’s not coming from funds included in your IVA, like an inheritance. To move forward, you’ll need approval from 75% of your creditors.
Once you have the green light from both your IP and creditors, you can approach various lending institutions that offer loans specifically for early IVA settlement. Be prepared to meet certain conditions, such as your time spent in the IVA and your payment history.
How Much Can I Settle to Close My IVA Early?
The exact amount you’ll need to close out your IVA will differ from person to person. Your creditors might even have a say in how much you need to pay.
Try to make an offer close to the amount you still owe. If your creditors don’t agree to your early settlement, you’ll continue making your original IVA payments as planned.
Can a Gift from Someone Help You Pay Your IVA Early?
If a friend or family member offers you a financial gift, you can use it to wrap up your IVA ahead of schedule. Before you proceed, consult with your Insolvency Practitioner (IP) and supply all necessary details about the person assisting you. These should include their ID, proof of funds, and consent form.
While an unexpected cash influx during your IVA generally goes straight into the agreement, it won’t automatically reduce the term of your IVA.
Getting extra money during your IVA usually just goes into your payment plan. But if it’s enough to pay off all your debt and the fees for the IVA, you can end the whole thing early. You won’t even need a special meeting to do it.
Can I Borrow from Family or Friends While on My IVA?
Technically, your IVA limits you from borrowing over £500, even from those closest to you. However, if you find yourself in a tight spot and need to borrow, consult your IP for guidance before taking any steps.
Borrowing from friends or family could jeopardise your IVA. You may be tempted to repay them first, upsetting your other creditors and potentially causing your IVA to fail.
Always consult your IP if you’re considering borrowing any amount, to ensure you’re staying within the terms of your IVA.
Do Homeowners Need to Remortgage in the Final IVA Year?
If you’re a homeowner with built-up equity, you’ll probably explore remortgaging options as your IVA comes to an end. You must evaluate your property’s value in the last year to gauge your equity.
Should this evaluation show more than £5,000 in equity, you’ll typically need to secure a remortgage to add a lump sum to your IVA. Rest assured, selling your house isn’t necessary.
Your IVA sets guidelines on how much to aim for when remortgaging. These guidelines take into account both your property value and current mortgage balance. If a new mortgage would outlast your current one or extend beyond your state retirement age, you won’t need to remortgage.
If you can’t secure a remortgage, simply continue your regular IVA payments for the final year.
Exploring IVA Alternatives
There are multiple avenues for tackling debt, each with its pros and cons tailored to different financial situations.
If you’re juggling multiple debts, consider merging them into a single, more manageable monthly payment. Doing so could even lower your overall interest rate.
Ideal for those with zero disposable income, a DRO offers a 12-month grace period where creditors can’t hound you. If your financial status remains unchanged after a year, you might be eligible to wipe out your debts.
A DMP enables you to negotiate manageable monthly repayments with your creditors. It’s a flexible route but demands careful budgeting. Agree to pay only what you can genuinely afford.
Trust Deed
For residents of Scotland grappling with debts exceeding £5,000, a Trust Deed appoints a manager to handle your finances and disburse payments to creditors. After an agreed period, any remaining debt may be forgiven.
As a last resort, there’s bankruptcy. This should only be considered when your debts surpass the total value of your assets. Always consult a financial expert before taking this severe step.
How Can You Avoid Falling for IVA Scams?
Unfortunately, not all IVA firms play fair. Here’s your quick guide to staying safe:
- Quick Sign-Ups
If they’re hurrying you to sign, step back. A proper UK IVA firm gives you time to understand the terms.
- Sky-High Fees
A legit IVA firm includes fees in your regular payments. Beware of those asking for steep upfront costs.
- Cold Calls
If a company contacts you first about an IVA, be cautious. You should be the one to make the initial contact.
In short, always do your homework before agreeing to an IVA.
The Bottom Line
Securing a loan while you’re in an IVA is no walk in the park. Should you need to borrow more than £500, it’s compulsory to consult your Insolvency Practitioner (IP). This should be your last resort, as it might complicate your IVA.
That’s where a seasoned mortgage broker well-versed in IVAs can truly shine. They’ll sift through lenders willing to work with you, essentially saving you heaps of time. Plus, they tackle the paperwork, removing another layer of hassle from the process.
If you’re keen to make a wise move, get in touch with us. We’ll link you with an expert broker equipped to guide you through this financial maze.
