An Individual Voluntary Arrangement is a viable debt solution for many that can help people get out crippling debt.
However, it’s important to note that an IVA, as well as other debt solutions like it, can have a profound effect on your life in many ways which you may not have foreseen.
In this post, I’ll be looking at how an IVA affects your financial circumstances both during as well as after it has finished.
Do IVAs Affect Credit Rating?
This is something that many people are confused about since the typical duration for which an IVA lasts and the typical duration for which an IVA lasts on your credit file are different.
Typically, an IVA lasts five years (or 60 months). That being said, the record of your IVA within your credit file lasts for six years after the date on which your IVA was registered.
This means that if your IVA lasted five years, then the IVA will stay in your credit file for another 12 months.
In cases in which your IVA lasts longer than six years, the IVA will stay in your credit file until your IVA is finished.
As you know, lenders check your credit history when they are trying to determine what type of risk you pose to them.
If they see a mention of an IVA in your credit file, they are a lot less likely to approve you for a loan or any other type of credit which you may be looking for.
Even if you do end up being approved, it might be at a much higher rate of interest than what is normal. You may also run into problems trying to secure the amount of money you need. Oftentimes, you may only be offered a lower loan amount due to your low credit rating.
Please note that your credit history isn’t only checked when you’re looking to borrow money.
There are other instances where your low credit rating due to the mention of your IVA may cost you too. For example, when you’re looking for a mobile phone contract or looking to rent a space to live in.
Will an IVA Affect My Job?
For a majority of jobs, an Individual Voluntary Arrangement (IVA) does not have an effect on them in any significant way.
That being said, there certainly are some job roles which this debt solution does affect which you need to be aware of.
For example, if you work as an accountant, a solicitor or any other similar role in financial services, then you may not be allowed to continue that job if you enter into a debt solution such as an IVA.
Some other jobs such as being a police or prison officer also have stringent employment rules and conditions which you need to be aware of.
If you’re worried about losing your job due to an IVA, you should ask your HR department about it in order to get further information.
If an IVA does indeed affect your job in a significant way, then you may have to think about some other solution to take care of your debt. You can consider seeking debt advice from an independent debt charity such as StepChange or Payplan.
The great thing about such debt charities is that they have professionals who will analyse your debt in detail and provide you with options which are best suited to your conditions.
It’s also important to note that even if entering into an Individual Voluntary Arrangement (IVA) does not affect your current job, you may want to think about what effect it may have on your future career goals.
For example, if you’re working a domestic job right now but are studying to become an accountant in a couple of years, you’ll have to think about how entering into an IVA right now may hurt your future career.
Again, in cases like these, I’ll have to advise that you seek advice from a debt professional. Going to debt charities is always the best option since they will give you advice for free.
Can I Get Credit with an IVA?
According to the rules that you have to abide by when in an IVA, you will not be able to secure any form of credit that is higher than £500.
For any credit higher than £500, you will have to seek permission from your insolvency practitioner.
He/she will only give you permission to seek credit higher than £500 if you have a justified reason for it such as an emergency expense.
Please note that you may have to provide proof of your emergency expense to your insolvency practitioner before he/she can approve you to seek credit.
Even if you get approved to seek credit, you will find that you will have a very hard time finding creditors that are willing to accept your application.
Getting a loan while in an IVA is very difficult because, as I mentioned earlier, the mention of an IVA in your credit file severely impacts your credit rating and most creditors will be very apprehensive about approving your application if they see it during their credit check.
Of course, creditors will be worried about your ability to pay them back since they’ll know that you’re already making repayments towards your IVA.
Even if you are able to secure credit, it may be at a very high interest rate. So, you may end up paying a lot more money in the long-term compared to what you borrowed.
Will an IVA Affect My Renting Situation?
If you already live in a rented home, then an IVA will not have any effect on your rent situation apart from the fact that you’ll have to plan your budget so that you can pay your rent as well as your IVA payments.
However, if you plan on moving and want to take up some other rented space, you may run into trouble.
This is, again, because of the fact that an IVA has a terribly negative effect on your credit rating.
Please remember that an IVA will stay on your credit file for six years and during these six years, you’re going to have a lot of difficulties securing a new space to rent.
This is because landlords almost always perform a credit check on potential tenants just like creditors do for potential borrowers.
It’s a great way to assess their risk factor and determine whether or not you’ll have trouble paying your rent every month.
Seeing an IVA in your credit file will not make a landlord happy. They may doubt your ability to pay the rent consistently each month and as a result, they may refuse you the space to rent.
Thus, if you’re thinking of moving to a rented space anytime soon in the future, I would recommend not going for an IVA and looking towards some other debt solution.
If you can help it, I would advise holding off on moving to another rented space until the record of an IVA has been completely removed from your credit file.
You will have much better chances of securing a rented space once the IVA is removed from your credit record.
Does an IVA Affect Future Income or Assets?
If you’re thinking about entering into an IVA, you have to keep in mind the fact that it is a debt solution that is going to last for at least five years.
During these five years, if you run into any type of unexpected money or asset, you may have to hand it over to your IP.
If you decide to move and sell your old property, then the money you make from the sale of that property may have to be paid directly towards your IVA.
If your income increases, then you’re going to have to inform your insolvency practitioner so that they can increase the amount of money you pay in the form of IVA repayments each month. Please note that you are legally obligated to do this. Withholding such information is against the law and will most definitely result in your IVA failing.
Thus, if there’s a chance that you’re going to receive a lot of money or some other valuable asset in the next five years, you may want to hold off on your IVA or consider some other debt solution.
Does an IVA Affect Getting a Mortgage?
Applying for a mortgage loan is pretty much the same as applying for any other type of credit.
As I’ve talked about earlier, it becomes very difficult to secure any type of credit if you have the mention of an IVA in your credit file.
First of all, you’re going to have to seek permission to get a mortgage loan from your IP. Your IP will most likely not grant you permission to do this unless you can justify it.
Even if you do get permission from your IP, chances that you’re going to find a lender who will provide you with a mortgage loan while you have an IVA are very slim.
A mortgage is a long-term loan that most lenders take very seriously and have strict eligibility criteria for.
If it’s an emergency and you really need to find a lender to get a mortgage loan, you can try looking for specialised lenders that may approve you for such a loan.
Always make sure that the lenders you are dealing with are authorised and regulated by the Financial Conduct Authority (FCA). You don’t want to be dealing with loan sharks as they operate illegally and will try to take advantage of your vulnerable situation.
What Should I be Doing in the Year After My IVA Ends?
During the 12 months that occur right after your IVA ends are very crucial.
How you handle yourself financially during these 12 months will determine if you will remain debt-free or if you will spiral back into debt once more.
The key during these 12 months is to avoid taking out any form of credit to fund luxury or unimportant purchases.
Instead, it’s a good idea to get a credit card and use it only for essential purchases such as utilities, groceries and fuel. Be sure to only buy what you can afford and pay off the outstanding balance in full each month.
Paying back the outstanding balance in full each month will help you rebuild your credit score and by the time your IVA gets removed 12 months later, you will be in a vastly better place financially.
An Individual Voluntary Arrangement can affect your life in many different ways.
It’s important that you make yourself aware of the effects it can have on the different aspects of your life before you enter into one.