IVAs - Debt management - Bankruptcy - Mortgages and Loans
1. What is an Individual Voluntary Arrangement (IVA)?
An IVA is a contract between you and your creditors. You pay an agreed monthly
sum, usually for 5 years. This is divided up between your creditors, who accept
the sum in settlement of the amount you owe them.
2. So how much will I be required to pay?
The monthly payment depends on your income and expenditure, and is agreed so
that it will be affordable to you. A standing order authority will be set up
and your first payment must be made within one month of work commencing on your
behalf.
3. What sorts of people enter into IVAs?
Simply people who cannot pay their debts. If you cannot pay your debts as they
fall due, you are insolvent and the law gives you two alternatives - bankruptcy
or an IVA.
4. Are there any other options?
You could get all of your creditors to reschedule your debts, but this may be
difficult if you have a lot of creditors. Some banks and building societies
have debt counsellors, and you could try speaking to them. Bear in mind that
unlike an IVA, an informal arrangement offers no guarantees. One or more of
your creditors could change their mind at a later date, or charge you higher
rates of interest later if your circumstances improve. You may also take longer
to finally clear your debt.
5. What are the advantages of an IVA?
- We help you to calculate what you can afford, and you make just one payment
to your client account by standing order each month. The payment amount is the
same over the whole period of the IVA unless your circumstances change and you
can afford more. Typically, your circumstances will be reviewed annually.
- Once your IVA is approved, all of your creditors are legally bound by its terms,
as long as you keep paying your agreed monthly sum.
- Once the agreed term of your IVA is over (usually after 5 years) you have no
further obligations to your creditors. At this point you stop paying the monthly
sum, and can start afresh.
- Your employment will probably not be affected. In fact, your employers will
not know about your IVA unless you choose to tell them.
- Unlike bankruptcy, an IVA is not advertised in the local press and does not
exclude you from running a business or lead to many professions terminating
your employment.
6. What do I need to do?
Before your IVA proposal is put to creditors you need to sign it as a "Statement
of Truth". You do not need a solicitor for this: you simply read it and
sign it. We prepare all documentation for you and also contact your creditors
on your behalf (and if necessary we will make an application on your behalf
to your local County Court for an "Interim Order").
A creditor meeting will then consider your proposal. You will not usually need
to attend as typically most creditors do not attend, voting by proxy instead.
Even if creditors do attend, the meeting usually only lasts for between 15 -
20 minutes. Someone from UK Debt Management will chair the meeting, and you need
to be available at the end of a phone line during this period.
7. What else should I know?
You might actually pay more out in an IVA than you would if you were made bankrupt.
This is because bankruptcy income contributions usually only last for 3 years,
whereas contributions in most IVAs last for 5 years. This voluntary increase
in the total payment should make your creditors sympathetic to your proposal.
8. Will my home be safe?
You will not usually have to sell your property when in an IVA. If you do own
your home, you need to take reasonable steps at the end of the IVA to make any
equity available to your creditors (usually by re-mortgaging). This requirement
is also true for bankruptcy, except that bankruptcy often means you do have
to sell your home.
9. What if my creditors don't agree?
At least 75% of votes (in value) at your creditor meeting must be in favour
of your IVA proposal. Creditors can suggest modifications to your proposal and
you can choose whether to accept them or not.
If your creditors don't vote in favour you will still have the option of an
informal arrangement with your creditors, or of bankruptcy.
10. Do I have to pay any costs?
You pay only the affordable monthly amount you agree to. This covers both your
payment to the creditors and our fees (which we will agree with the creditors).
Providing you keep to the agreement for five years, any debt you can't afford
to repay will be written off by your creditors.
11. What is a debt management plan?
A Debt management plan is an arrangement between yourself and a Debt Management
company who agree to supervise and distribute your debt repayments to your creditors.
Some people can restructure their repayments into a more convenient plan and
you won’t have to sell your home as part of the agreement. Interest charges
are not usually stopped and Debt Management companies may or may not charge
a fee for their services – UK Debt Management would only ever recommend
non-fee charging debt management companies
12. What is Bankruptcy?
Bankruptcy is a legal process that allows you to free yourself from overwhelming
debts and make a fresh start by selling your assets and using the funds raised
to pay your creditors. After your bankruptcy ends your creditors can make no
further claims against you. However, bankruptcy brings with it certain restrictions
such as your situation being advertised in the local press, having your landlord
informed, and in certain professions a risk of losing your job.
13. Is a secured loan or remortgage right for me?
This is down to individual choice, mortgage rates are usually lower and set
up fees higher than those of loans because of the length of time involved and
your home will be at risk in both cases if you cannot meet the repayments.
14. Will a consolidation loan help me?
If you can consolidate all of your existing debts into a loan that offers lower
total repayments then a consolidation loan might be the best solution; you will
save money in the long run and avoid more drastic solutions. This might not
be possible in some cases as many people who are experiencing serious financial
difficulties tend to have poor credit ratings; if this is the case then taking
on more financial responsibility is likely to make your situation worse.
15. Can I remortgage if I have a fixed / discounted mortgage?
Yes, but you will normally have to pay an early settlement charge to your lender.
If your settlement charge is high it might be best to opt for a secured loan.
16. How long does the process take?
Remortgages normally take approximately 6 weeks and secured loans approximately
3 weeks.
17. Are there any up front fees?
Not on Secured loans. A remortgage application fee will cover the cost of valuation,
mortgage reference and administration costs.
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