What Debts Can Be Included in an IVA? A Complete Guide

For many individuals in England and Wales, dealing with debt can be overwhelming. If you’re considering an Individual Voluntary Arrangement (IVA) as a potential solution, understanding what debts can be included is crucial. This guide will help you navigate the specifics of IVAs, offering clear advice on eligible debts and the process involved.

What is an IVA?

An Individual Voluntary Arrangement (IVA) is a formal agreement between you and your creditors to pay back debts over a period of time. It is managed by a licensed Insolvency Practitioner and usually lasts for five years. Once approved, it becomes legally binding on all unsecured creditors.

Unlike informal arrangements, an IVA requires approval from creditors holding at least 75% of your debt by value. It can be a viable solution for those with significant debts who wish to avoid bankruptcy while protecting certain assets.

IVAs are tailored to individual circumstances, allowing debtors to make manageable monthly payments based on their income and expenditure. This structured approach not only provides a clear path to debt resolution but also offers peace of mind, knowing that creditors cannot take further legal action once the IVA is in place.

Consider the example of Jane, a single mother with a mounting credit card debt and overdue utility bills. By opting for an IVA, Jane was able to consolidate her debts into a single monthly payment that aligned with her budget, while also safeguarding her assets, such as her car, which she relies on for work.

What Debts Can Be Included in an IVA?

An IVA can encompass a wide range of unsecured debts. Here are the types of debts typically included:

• Credit Card Debt: This includes balances from credit cards, store cards, and charge cards. For instance, if you owe £10,000 across multiple credit cards, an IVA can consolidate these into one monthly payment.
• Personal Loans: Unsecured loans from banks, credit unions, or other financial institutions. Imagine owing £5,000 from a personal loan taken for home improvements; this can be included in your IVA.
• Overdrafts: Any overdrawn amounts from your bank account. Suppose you’re consistently overdrawn by £1,500; an IVA can help manage and reduce this debt.
• Utility Bill Arrears: Outstanding payments on gas, electricity, and water bills. If you’ve fallen behind on £800 worth of utility bills, these can be part of the IVA.
• Tax Debts: Debts owed to HMRC, including income tax and VAT. For example, if you owe £2,000 in unpaid taxes, this can be addressed through an IVA.
• Catalogue Debts: Balances owed to mail-order catalogues. If you have £600 outstanding on catalogue purchases, this can be included.
• Rent Arrears: Past-due rent payments may be included, but it’s essential to have a conversation with your landlord. For instance, if you owe £1,200 in back rent, your landlord’s agreement is crucial.

Secured debts such as mortgages or car finance agreements cannot be included, as creditors have the right to repossess the asset tied to the loan if payments are missed. Therefore, if you have a mortgage or car loan, these will need to be managed separately from your IVA.

Eligibility Criteria for an IVA

Before considering an IVA, ensure you meet these criteria:

• Minimum Debt Level: Typically, you should owe at least £5,000 in unsecured debts. This threshold ensures that the IVA is a practical solution for both you and your creditors.
• Regular Income: You need a stable income to make monthly payments. This could be from employment, self-employment, or a pension. Without a steady income, maintaining the agreed payments could become challenging.
• Creditor Agreement: 75% of your creditors by the value of the debt must agree to the IVA. This consensus is crucial for the IVA to be legally binding and effective.

Consider the scenario of Tom, who has £15,000 in unsecured debts and a steady job providing a regular income. After consulting with an Insolvency Practitioner, Tom meets the criteria for an IVA and proceeds with the application, offering a feasible repayment plan to his creditors.

IVA Process: Step-by-Step

1. Consultation: Discuss your financial situation with a debt adviser to determine eligibility. During this stage, you’ll assess your debts, income, and expenditure to understand if an IVA is the right choice.
2. Proposal Preparation: The Insolvency Practitioner will draft an IVA proposal for you and your creditors. This document outlines your financial situation, the proposed repayment plan, and how it benefits both you and your creditors.
3. Creditors’ Meeting: Your creditors will vote on whether to accept the proposal. If 75% agree, the IVA is approved. This meeting is crucial, as it determines the success of your application.
4. Implementation: If approved, you make regular payments to the Insolvency Practitioner, who distributes them to creditors. This stage requires discipline and commitment to adhere to the agreed plan.
5. Completion: After the IVA term, any remaining debt is usually written off. This final step marks the end of your IVA journey, providing a fresh financial start.

For example, Sarah, with £20,000 of debt, successfully completed her IVA by diligently making her monthly payments over five years. Upon completion, she was relieved of her remaining debt, allowing her to rebuild her financial future.

Comparing IVA with Other Debt Solutions

Understanding how an IVA compares to other debt solutions can help you make an informed decision.

IVA vs. Debt Relief Order

A Debt Relief Order (DRO) is suitable for those with lower debts (up to £50,000) and minimal assets. Unlike an IVA, a DRO lasts 12 months, after which debts are written off. However, you cannot own a home or a vehicle worth more than £4,000.

For instance, if Emily has £10,000 in debt and no significant assets, a DRO might be more appropriate than an IVA. However, if her debts exceed £50,000 or she owns a home, an IVA would be a better fit.

IVA vs. Bankruptcy

Bankruptcy may clear debts faster, usually within 12 months, but can put your home and assets at risk. An IVA may be preferable if you wish to retain assets and have a regular income to manage repayments.

Consider John, who owns a home and has a stable income. Opting for an IVA allows him to manage his £30,000 debt without risking his home, whereas bankruptcy could result in the loss of his property.

Common Mistakes to Avoid When Considering an IVA

While an IVA can be a beneficial debt solution, there are common pitfalls to avoid:

• Ignoring Professional Advice: Always seek guidance from a licensed Insolvency Practitioner before proceeding. They can help you understand the implications and ensure an IVA is suitable for your situation.
• Inaccurate Financial Disclosure: Ensure all debts are disclosed accurately to avoid complications. Failing to include certain debts can disrupt your IVA and lead to its failure.
• Unrealistic Payment Plans: Agreeing to unsustainable payments can jeopardise the IVA. It’s important to propose a plan that reflects your genuine financial capacity.

For example, Mark underestimated his monthly expenses in his IVA proposal, leading to financial strain and missed payments. By reassessing his budget with his Insolvency Practitioner, he was able to adjust his plan and successfully complete his IVA.

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