How does an IVA really work?

If you've been struggling with unsecured debt, you may have heard of an IVA (Individual Voluntary Arrangement) as a way of dealing with it. But how does an IVA work?

Step one: are you eligible?

Before you find out everything about how an IVA works, it's worth seeing whether you're eligible for one or not. An IVA is only suitable for people who are really struggling with their unsecured debts and can't meet their monthly payments.

In fact, to be eligible for an IVA you must be unable to clear your debts in full anytime in the foreseeable future. You will only be able to get onto an IVA if you really need one - because a certain amount of your lenders will have to agree to it before it can start. If your lenders think you can repay your debts in another way, they're less likely to accept your IVA.

Step two: find an Insolvency Practitioner

You can't arrange an IVA on your own - you'll need to apply through a qualified Insolvency Practitioner (IP). Click here to find out how an Insolvency Practitioner at Freeman Jones could help you.

Step three: work out how much you can pay each month

You and your Insolvency Practitioner will then examine your finances. You'll work out how much you can actually afford to pay towards your unsecured debts each month. You'll do this by drawing up a budget, seeing how much you spend on essential costs (like your mortgage) - then working out how much is left over.

Step four: the proposal

Once you've worked out how much you can pay your lenders each month, your IP will submit an IVA proposal to your lenders, telling them how they think the IVA should work. If enough of them agree, your IVA will go ahead.

Step five: your payments

You will make the payments agreed until your IVA is completed. Generally, as long as you stick to your payments as agreed, your IVA will be complete after around five years. During your IVA you will be protected against legal action from your unsecured lenders and interest and charges on your debts will be frozen. If you have more questions about what will happen during your IVA, click here to see if they have been answered on this page.

Step six: completion

Once your IVA is successfully completed, any remaining debt in your IVA will be written off.

Bear in mind, however, that you may be asked to release equity in your home and your credit rating will be damaged for six years from the time your IVA starts.

Click here if you'd like to apply for an IVA - or just talk to an expert with your questions.

By Matthew Plant.