An IVA (Individual Voluntary Arrangement) is a formal debt solution – a legally binding agreement between an individual and their unsecured creditors. It is designed to help people with an unmanageable level of unsecured debt that they cannot realistically expect to repay within a reasonable timeframe.
Basically, it helps them repay what they can afford, after which the lenders will write off their outstanding debt, although the borrower’s credit rating will be seriously affected.
IVAs are designed to help people become debt free in five years, although this may vary, depending on the terms of the agreement and whether or not the borrower misses any payments throughout its duration.
However, nobody can guarantee that their financial situation will stay as it is for five years – which is why IVAs offer a degree of flexibility.
What if my situation changes while my IVA is in progress?
Anybody’s financial situation can change, and if yours does – if your income drops, for example – it may prevent you from making the IVA payments you agreed to.
So, if a significant change in your financial circumstances does take place while your IVA is in progress, you should talk to your IP (Insolvency Practitioner).
After assessing your situation, your IP may tell you that the best way forward would be an ‘IVA variation’. This is basically a new proposal giving details of the changes you would need to make to the manner in which you are clearing your debt – to help you bring the IVA to a successful close, despite the fact that your situation has changed.
IVA variations – how do they work?
After seeking IVA advice, you may find that an IVA variation isn’t the right way forward. If this is the case – and there’s no way you can keep up with your ‘original’ IVA payments – the IVA will fail and you may want to consider an alternative debt solution, such as debt management or bankruptcy.
However, if you find that an IVA variation is the right way for you to get your IVA back on track, your IP will help you draw up a new proposal, which will be given to your creditors.
In much the same way as your original IVA proposal, the IVA variation would have to be accepted by voting creditors who collectively ‘own’ 75% or more of your overall debt. If enough of your creditors agree to this, the new terms will come into effect.
