What happens once my IVA is approved?

31 July 2009

If you`re struggling with unmanageable debt, an IVA (Individual Voluntary Arrangement) could be right for you.

An IVA is a legally binding arrangement that can allow you to avoid bankruptcy by agreeing to repay a percentage of your unsecured debts (as much as you can afford), and write off the rest.

The IVA approval process

Before an IVA can go ahead, you`ll need to work with an Insolvency Practitioner (IP) to draw up the initial IVA proposal. This sets out the proposed terms of your IVA, such as how much you can afford to pay to each of your creditors, and over what period of time.

The IVA proposal will be sent to each of your lenders, who will be given at least 14 days to consider the terms and `vote` for or against the IVA. At the end of the given period, the `creditors meeting` will take place - a period of time in which you and your IP must make yourselves available to consider any queries your lenders may have regarding the terms, and any changes they may wish to request.

For the IVA to go ahead, 75% of voting lenders (by debt value) must approve the terms. If it`s approved by enough of your lenders, the IVA will become legally binding on everyone - including any lenders who didn`t vote, or voted against it.

What happens after my IVA has been approved?

If your IVA is approved, you will then begin making regular payments, in most cases every month for 5 years, to your IP. The IP will distribute the agreed amounts among your lenders as set out in the proposal.

As long as you fulfil your side of the agreement, your lenders will not be able to change their minds or take any legal action against you.

An IVA will usually last for 5 years (although this can vary). At the end of this period, providing your IVA is completed successfully, you will be legally debt-free.

What else should I consider?

An IVA is a serious financial commitment and will have a significant impact on your credit history, potentially making it difficult and/or expensive to obtain credit for 6 years from the day the IVA starts. It will also leave you with little or no disposable income, as you will be expected to contribute as much as you possibly can towards the IVA (after your essential costs have been covered).

You may also be required to give up a portion of any increases in your income (while the IVA is running) to put towards your debts. And if you`re a homeowner, you may be expected to release some of the equity in your home in the final year of the IVA.

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Gregory Pennington is a member of DEMSA whose code of conduct is approved by the Office of Fair Trading.