An individual voluntary arrangement is normally associated with regular monthly payments. However, if you cannot afford to make monthly payments we consider under what circumstances doing an IVA may still be possible.
An individual voluntary arrangement (IVA) is an offer to settle your unsecured debt with an amount you can afford. The settlement you offer is generally less than the full amount of debt that you owe. It is normally paid over 60 monthly installments.
The monthly payment that you make is determined by your disposable income.
You calculate your disposable income by taking your normal monthly income and deducting all of your reasonable living expenses. The amount remaining is your disposable income.
There is no minimum amount of debt that you must repay. However you will need to be able pay a reasonable amount for your creditors to accept your IVA proposal. Generally the minimum disposable income figure you will need to pay is £150 a month.
If you have no disposable income or it is simply too low to pay the amount required to make your IVA work then on the face of it you may think that you will not be able to start an IVA.
Lump sum settlement IVAs
If you have little or no disposable income, an IVA may still be possible if instead of monthly payments you can offer a single lump sum settlement.
The lump sum can come from any number of different sources.
One possibility is that it can be made available from a third party such as a partner, other family member or friend.
In effect they can lend or even give you the lump sum which you then use to settle your IVA. You can then agree to repay them under your own terms and in your own time.
Alternatively, the lump sum might come from the sale of an asset such as a property or simply the release of equity from a remortgage.
Protection from creditor action
One of the advantages of setting up an IVA is that once it is in place, none of your unsecured creditors can take further legal action against you to collect their debt.
For example if you owe money to the Inland Revenue (HMRC), unless this can be paid within a matter of months, it is likely that they could take serious action against you such as applying for your bankruptcy.
In addition, if you are a home owner, any of your unsecured creditors could take action to secure their debt against your property in the form of a charging order.
If you propose a lump sum IVA, the lump sum does not have to be paid straight away. It can be agreed that the lump sum will be paid at a later date for example when your property is sold.
Even though you are making no monthly repayments, an IVA will give you an ideal protective umbrella from your creditors until the time when your lump sum becomes available.
IVA possible without monthly payments
Based on the option of carrying out a lump sum settlement IVA, starting an IVA without the need to make monthly payments becomes possible.
In fact an IVA can be particularly useful if you are planning to sell your house or remortgage to raise a necessary lump sum but need time to do this.
Your IVA can start immediately and then will protect you legally until the lump sum is made available.
What to do next...
If you are struggling with debt, visit www.beatmydebt.com
Our experts are available to speak to you about your debt problem and offer advice and solutions.
Our vibrant debt forum gives free access to experienced industry experts and others who have suffered with debt problems.
Useful guides, calculators and information are also available designed to help you understand how to manage and resolve debt problems.
James Falla is a debt adviser from BeatMyDebt.com in the UK. For more quality and unbiased information on Debt Management Plans, visit our website at http://www.beatmydebt.com
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