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What are the Criteria Required to Accept an IVA?

The number of IVA applications has increased sharply over the last 5 years, according to the Insolvency Service, an executive agency of BERR, although it appears to have reached a plateau in recent months.

An IVA is a mechanism to make unaffordable unsecured debts affordable. Unsecured debts consist of credit cards, personal loans, overdrafts and store cards. Certain criteria have been put in place by these lending institutions to determine whether you qualify for an IVA or not.

The following is based on the criteria that tend to be used:

Residents in England, Wales or Northern Ireland:

IVAs are available to residents of England, Wales and Northern Ireland but not available to Scottish residents or people living outside of the UK. In Scotland, however, there is a process similar to an IVA known as the Trust Deed.

Debts should be over £12,000

Setting up and supervising an IVA is time consuming, and can last for 5 years. This is reflected in our costs, which are paid by your creditors. Because of this, using an IVA to repay small amounts of debt is really not worth it. Also, an IVA is only suitable for those who are seriously indebted and is an alternative to bankruptcy.

Minimum dividend

Your creditors will not usually accept an IVA which yields less than 25% of what is owed. The norm is in the region of 40%.

Payments must be affordable:

You must be able to show that the IVA payments you have committed to making are affordable. It is the Insolvency Practitioner's responsibility to make sure that these payments are reasonable and affordable.

You must demonstrate that you have stable employment with regular income and are able to afford to make priority payments such as mortgage or rent, as well as being able to afford necessities like food and living expenses every month. The Insolvency advisor will undertake a detailed income and expenditure Factfind to show this.

Essential living expenditures:

For the duration of the IVA your monthly contribution is calculated by taking your monthly income after tax minus essential living expenses like rent, bills, transport and food. You should show that you will not be spending excessively and that you can afford to make the payments to the IVA.

Here is some basic money saving tips that a debtor can make:

• Cut down on social expenses like restaurants, alcohol and tobacco.
• Move to a cheaper apartment or get a lodger.
• Cut down on unnecessary bills like mobile phones and satellite TV.

If you own any non essential assets which you do not need, e.g. you may have inherited an original painting, you would normally be expected to include this in your proposal. This means you would commit to attempt to sell the asset to raise funds to pay to your creditors as part of your IVA.

Be responsible:

Before approving a debtor's IVA application, the Insolvency Practitioner (IP) will want assurances that the debtor understands the magnitude of making a five year commitment.

Show sufficient proof:

Your IVA proposal is based on the information that you provide to us about your assets, credit commitments, income and monthly expenditure. You will need to provide evidence of this to support your proposal, such as payslips, recent bills and possibly even a property valuation.

Entering an IVA could help you to solve your debt problems, but is not always the best solution.

Speak to a professional at Harrington Brooks about applying for an IVA and whether it is the right solution for you.

Contact us now for further information and no-obligation help on 0800 0481 764