How Long Does an IVA Last? Scenario Analysis
Many people are turned off by an Individual Voluntary Arrangement due to its long duration.
The truth of the matter is that the duration of an IVA can vary and it depends on a number of different factors.
In this post, I’ll be discussing how long an IVA lasts and what are some aspects that can determine whether an IVA ends early or lasts for a long period of time.
What does an IVA Mean?
IVA stands for Individual Voluntary Arrangement. It is a formal and legally-binding agreement between you and your creditors.
It states that you will make monthly payments to them over the course of an agreed-upon duration and at the end of this duration, your debt will be considered completely paid off.
It’s a great solution for people struggling with debt and it’s also useful for individuals who have debts in many different places.
With an IVA, you don’t deal with your creditor(s) directly. Instead, another individual, known as your Insolvency Practitioner, deals with them for you. He/she is responsible for managing your debts and IVA repayments.
Please note that you will only be obligated to make monthly payments that are affordable to you and if, at the end of the duration, some amount of debt remains, then this debt is written off.
IVAs are a great solution for borrowers who are struggling with debt since it’s very affordable and it also protects them from creditors.
An IVA protects your assets and also prevents creditors from taking legal actions against you such as trying to make you bankrupt. This is something that is not present in most other types of debt solutions.
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How Long does an IVA Last?
IVAs are often praised as an affordable and relatively easy debt solution that borrowers can opt for if they’re struggling with debts.
Many people are worried about the duration for which it will last and oftentimes, this duration is unclear.
What you need to be aware of is that how long your IVA will last will depend on your individual financial circumstances as well as other aspects.
|IVAs came into existence in 1986 with the Insolvency Act. According to this, an IVA can last from anywhere between 3 months to 7 years. The most common duration for an IVA is 60 months (five years).|
What are Some Aspects that could Affect My IVA’s Duration?
There are a number of different aspects which could affect the duration for which your IVA lasts.
Let’s explore them.
A Change in Your Financial Circumstances
When you enter into an IVA, you will be dealing with a person known as your insolvency practitioner.
Your insolvency practitioner advises you on aspects of your IVA, deals with your creditors and ensures you’re being treated fairly throughout the entire process.
In addition to this, your insolvency practitioner is the one who assesses how much money you can afford to pay in the form of your monthly payments.
You communicate with him/her in order to determine what your monthly payments are going to look like.
As I mentioned earlier, you will never be pressured to pay more money than what you can afford. Thus, if your financial circumstances change, then the amount of money you pay each month will also change.
Please note that you are obligated to inform your insolvency practitioner of any change in your financial circumstances. Hiding important information such as this is against the rules of an IVA and it could even lead to the termination of your IVA.
So, if your financial circumstances improve for the better, then you may be required to pay more towards your IVA repayments every month. As a result of this, your debt may be paid off sooner than what was expected and your IVA may end earlier than the typical five years.
On the other hand, if your financial circumstances worsen, then the amount you pay each month will become lower. Please note that while this in itself will not result in your IVA’s duration increasing but your creditors can make a request to do so.
What may result in your IVA duration increasing is if you start missing your IVA repayments due to your financial circumstances worsening. If you start missing repayments, not only can your IVA duration increase but in extreme cases, your IVA may be terminated entirely.
Thus, it’s very important that you communicate your financial situation with your insolvency practitioner as soon and as often as possible.
Your insolvency practitioner can give you advice and help you figure something out if your financial circumstances worsen. Think of them as an ally.
Homeowner vs Non-homeowner
If you are a homeowner, then you might be obligated to remortgage it as a part of the terms included within your IVA.
This typically happens towards the end of your IVA in the final year. Please note that this will happen in most standard IVAs that last 5 years.
Firstly, your home’s value will be determined by how much equity it has. Your equity is defined as the profit you would make if you were to sell the property after its mortgage was paid off completely.
If the total equity in your property is more than £5,000, then you will have to remortgage it for the completion of your IVA. It’s important that this isn’t the case in all IVAs but it CAN happen.
It’s also important to note that if the remortgage term is longer than your original mortgage term or if the remortgage term goes beyond your state retirement age, then you will not be required to take out a remortgage.
This is why a lot of people prefer IVAs over other debt solutions such as bankruptcy. When it comes to bankruptcy, you’ll have to sell your home whereas in an IVA, you won’t have to sell it.
Getting a remortgage on your home will definitely set you back financially but many people find this to be worth it as opposed to losing their home entirely.
|If you’re not a homeowner or if a remortgage cannot be taken out against your home because of any of the reasons I listed above, then you will be obligated to make your monthly IVA repayments for another 12 months. Meaning that if you had a standard IVA that would have lasted 5 years, then it would last 6 years now.|
Using a lump sum of money to settle an IVA with your creditors is also a possibility.
If you have a large sum of money which you obtained through the sale of an asset, a third party or some other source, then you can use this to get what is called a ‘full and final’ IVA.
This would involve you offering a one-off lump sum of money to your creditors in exchange for them writing off your debt entirely.
Please note that the lump sum doesn’t necessarily have to be as large as the amount of debt you owe; It can be lower.
Creditors are likely to accept this offer if they feel that you will not be able to repay the debt in full and that your financial situation isn’t going to be improving any time soon either.
Of course, if you are able to negotiate quickly and successfully with your creditors, then your debts will be written off much sooner and your IVA will be over and done with much quicker than 5 years.
However, it’s important to note that your creditor(s) may take a long time to respond to your offer and depending on this, the duration of the process may vary.
If you happen to have a large lump sum of money available to you, then this is definitely an option you can consider.
However, you may have to hire a debt professional to help you negotiate an appropriate settlement with your creditor(s).
When you’re looking for a professional to help with your debt or even your finances in general, always make sure they are authorised and regulated by the Financial Conduct Authority.
Individuals and organisations who are not authorised and regulated by the Financial Conduct Authority may be operating illegally and may try to take advantage of your vulnerable situation. Avoid them at all costs.
A typical IVA lasts five years and it’s definitely a prudent way of taking care of your debt.
However, it’s worth mentioning that there are certain factors which can make the duration vary. Thus, you should always assess whether anything will affect your IVA’s duration and make decisions accordingly.