An IVA or involuntary arrangement is a legal agreement between your creditors and you that can help you to pay your debts off at a more affordable and a manageable rate. Before going ahead with getting this kind of help with your debts, though, it’s important to note how this type of insolvency could affect your finances.
The Restrictions You Face If You Get An IVA
Some of the main ways an IVA can affect your financial situation is through the following restrictions. So, look at these carefully before deciding to apply for an IVA
- The details of your IVA, similar to if you filed for bankruptcy, are recorded onto the Insolvency Register and available to the public
- You are not able to take on any new debts over £500 during the term of your IVA, until it has been fully settled
- As well as your normal agreed upon contribution, if you make any additional money from work or get bonuses, you will be expected to pay a percentage of this towards the IVA
- During the term of your IVA, you will need to declare extra assets you are given after your application has been successful. You will probably be expected to pay these towards your IVA also
- Any hire purchase agreements you have in your name could be affected by your IVA
- Your employment could be affected by an IVA, so it’s advisable that you speak to the HR department or check the contract you signed with your employer very carefully.
- The term of your IVA may be extended if you miss any payments, to cover the resulting arrears
- You will be expected to keep within the agreed upon budget established at the time of your application for an IVA being successful, which is normally between 60 and 72 months.
- From the date your IVA details and term was agreed, your credit score will be affected for up to 6 years
The Effects of an IVA on Your Home
Contrary to what you may believe, you don’t need to sell your property if you have an IVA. That being said, it may be that you are required to remortgage the property around 6 months before the IVA term finishes to release equity, depending on how much equity is in your home. This is then taken and paid into the IVA.
If you are required to remortgage your property, you won’t need to increase it over 85% the value of the property. As with any situation, the new mortgage will be assessed to check its affordability.
If you’re not already a home owner, you can still get a mortgage after an IVA, however it’s advisable to go through an experienced broker to find you a specialist lender.
The Effects of an IVA on Your Credit Rating
When you have an IVA agreement, you will have it listed on your credit report for 6 years. This 6 year starts from the date your IVA agreement is fully approved. This means, even if you finish it early, you will still have it listed on your credit report for 6 years, but it will be marked down as being complete.
On the other hand, if it takes you longer than the 6 years to clear your IVA, it will remain on your report until it has been completed.