Check if an IVA is right for you
If you haven't already, you should first check what an IVA is.
To decide if an IVA might be right for you, you'll need to check:
- how much your debts are
- if you have spare money to pay towards your IVA
- if an IVA will affect your home
- if you can afford the IVA fees
- what else an IVA can affect in your life
If you need help deciding if an IVA is right for you, talk to an adviser.
1. Check how much your debts are
If you don’t know how much your debts are, you can find out how to collect information about your debts.
An IVA might be right if your debts are:
- more than £10,000 - you can get an IVA if you owe less, but the fees are high so there might be better options if your debts are smaller
- from at least 2 different creditors - creditors are people you owe money to
If you owe money to people or companies in the EU
An IVA might not be right for you if you owe money to people or businesses in the EU. These debts might not be covered by an IVA.
Your creditors could keep asking you for money, for example by calling you and sending letters.
EU creditors still have to sue here in the UK rather than abroad in the EU, even if they have an existing judgment. The UK will recognise EU judgements entered or started before 31 December 2020.
Get legal advice if you have creditors in the EU. Find free or affordable legal help.
2. Check you have spare money to pay towards your IVA
To get an IVA, you should have some spare income each month to pay your creditors, usually at least £100. Your creditors are unlikely to accept an IVA if your payments are less than that.
However, an IVA can be flexible depending on your needs and circumstances. For example, if you don’t have much spare money from your monthly income but do have something you can sell to raise a lump sum, you might be able to pay your creditors with the lump sum.
Your insolvency practitioner - a qualified lawyer or accountant, will advise you on what payments to make. You should only agree to payments you think you can afford.
If you have a lump sum of money
You might have a lump sum of money, for example money left to you in a will. This is likely to be included in the IVA. This means you’ll need to use this money to make your monthly payments to your creditors.
If you’re over 55 and have a 'defined contribution pension', you could cash in some of your pension to raise a lump sum for an IVA. However, this would leave you with less money to live on in retirement.
You should get financial advice from an independent financial adviser before using your pension to pay off debt. A ‘defined contribution pension’ is based on how much has been paid into your pot, not your salary near retirement.
3. Check how owning your home will affect your IVA
If you own your home, its value will be taken into account as part of your IVA. You’ll have to get a valuation of your home to find out how much equity is in it. Equity is the money you'd make from the sale of a property after any mortgages are paid off.
If the valuation shows your share of your property’s equity is more than £5,000, you’ll usually have to borrow against your home to raise a lump sum to put into your IVA. You shouldn’t have to sell your home to do this.
With most IVAs there is a limit on the amount you’ll be expected to raise. The limit is based on the value of your home and the amount of the mortgage you already have. You won’t usually be expected to borrow against your home if the new loan would extend beyond the existing loan term or beyond your state retirement age.
If you can't get a new loan, you'll continue to pay the usual monthly repayments under the IVA for a further 12 months instead. Your IVA will be 6 years instead of 5 years.
If you get support for mortgage interest (SMI)
Your SMI payments might stop and you might have to pay back any SMI you've had since 6 April 2018. An IVA might not be right for you.
4. Check you can afford the IVA fees
You always have to pay fees for an IVA to be set up and managed - around £5,000 on average.
The fees charged by the insolvency practitioner are for:
checking an IVA is right for you
applying to the court for your IVA and speaking to your creditors
making sure your creditors get the agreed payments and reviewing your situation each year
How and when you pay the insolvency practitioner varies. Some practitioners will ask you to pay a fee before setting up an IVA.
Other practitioners won’t charge a fee at the start. The fees will be taken from your monthly debt repayments. When you make your monthly payment into the IVA, a portion of the money will go to pay the insolvency practitioner and the rest will go to your creditors.
Some insolvency practitioners might offer you a free or reduced rate initial meeting to talk about whether an IVA is suitable for you. Ask around to see who offers this service.
Get estimates for the fees
If you decide you want to set up an IVA, you should ask a number of insolvency practitioners for quotes or estimates on what fees they will charge you. That way, you can compare costs.
5. Check how an IVA will affect your life
Before you decide to apply - check how an IVA will affect other things like your belongings, savings, job and pensions.
If you get more income or belongings during an IVA
Having an IVA might affect any future income or assets that you get. For example, if you move house during an IVA, any money you make as profit from the sale of your property might have to be paid into the IVA.
If your income goes up while you have an IVA, you have to declare it to your insolvency practitioner. If you don't, you could be breaking the agreement.
Most IVAs have a windfall clause. A windfall is money or belongings you get unexpectedly - for example:
winning the lottery
inheriting a house
getting a large bonus payment
If your IVA has a windfall clause, you’ll have to pay any windfall money into your IVA.
If it’s likely you're going to receive an inheritance or large bonus or gift within the next 5 years, you should think carefully about whether an IVA is suitable for you.
If you have lasting power of attorney
Lasting power of attorney is a legal role that gives you legal authority to make decisions for someone else. For example, you might have control of their home and money.
Your lasting power of attorney isn’t affected by an IVA.
Check how your belongings will be affected
Most of your belongings won't be affected by having an IVA - for example, items you use in your home.
If you own more expensive items, such as antiques or expensive jewellery you might want to sell them to help pay your debts.
High value items like a ‘home’, ‘land’ or a ‘car’ are called assets and can be included in your IVA. This means you will sell them and use the money to pay the creditors. You don’t need to have any particular assets to get an IVA.
Your insolvency practitioner will talk to you about your assets and whether they should be included in the IVA or whether you can keep them. You must tell the insolvency practitioner about all your assets. If you don’t tell them about something you’ll be breaking the law.
Any assets that you want to keep, such as a car, must be excluded from the IVA. If you don't want to include an asset and the insolvency practitioner doesn't think your creditors will agree to exclude it, your insolvency practitioner won't send the proposal to your creditors.
Check how your bank accounts and savings will be affected
If you have savings, you usually have to include these in your IVA, either by paying your creditors a lump sum or using the money to make monthly repayments.
If you owe money to your bank or a company connected to them, your bank can take money out of your account to pay the debt. It’s a good idea to get your income paid into an account at a different bank before your IVA starts. Your insolvency practitioner should help you with this.
Check how your job might be affected
Getting an IVA won’t usually affect your job.
It might be a problem if you work in certain professions - for example, if you're a solicitor or accountant. You might not be able to keep working in your profession while you have the IVA, or you might have to follow certain conditions.
If you're worried about the impact of an IVA on your job, check the terms and conditions of your contract. Check if it says anything about continuing to work when you have an IVA.
Check how your pensions will be affected
If you're getting a State Pension, it will be included when you work out how much you can afford to pay into an IVA.
If you have a personal or workplace pension
If you get money from a personal or occupational pension, it will be included when you work out how much you can afford to pay into an IVA.
If you get a lump sum as part of a personal pension, you might need to agree to pay this into your IVA.
If you’re still paying money into your personal pension, you might have to stop paying into the pension and use the money to pay your creditors while you have the IVA. It might be possible to continue paying into your pension if there's an important reason. Ask your insolvency practitioner.
If you have a defined contribution pension
If you haven’t started taking money from your pension pot, your creditors probably won’t expect you to access it to pay money into the IVA, even if you’re allowed to.
If you start to take money from your pension pot while you have the IVA, this will count as income and you might have to pay it into the IVA. Your insolvency practitioner will advise you on this.
You could choose to cash in some of your pension to raise a lump sum for an IVA. However, this would leave you with less money to live on when you retire. It might also mean your creditors get access to the rest of your pension pot.
You should get advice from an independent financial adviser before using your pension to pay off debts.
Check how your credit rating will be affected
You might find it difficult to get credit for 6 years after your IVA starts. You might still be able to get credit for household goods and services - for example, a fridge or car insurance.
If you own your own business you might be able to get credit for business goods and services. However, you might be charged higher interest rates because of an IVA. This might mean your debts increase and you’ll find it harder to pay them.
If you want to get more than £500 of credit you must get written permission from your insolvency practitioner. You don’t need to get written permission if the credit is for public utilities such as water, gas or electricity.
If you're worried about your address being published
Details of your IVA will be kept in a public register called the Individual Insolvency Register. You can ask for your address not to be published if you're worried someone might see it and hurt you or your family. You can apply for an order for non-disclosure of your current address on GOV.UK.
If you find the application for non-disclosure difficult to fill in, you can ask your insolvency practitioner to do it for you.
How to apply for an IVA
If you’re sure an IVA is right for you, you can find out how to apply for an IVA.