What are the disadvantages of an Individual Voluntary Arrangement (IVA)?

Involuntary Voluntary Arrangements (IVA’s) are often proclaimed to be the ideal solution for those who wish to retain control over their assets including their home.

However, IVA’s do not come without their associated disadvantages:

• Once you enter the legally binding terms of an IVA, you are locked into paying it for a period of five to six years. If you stop paying or can’t pay your IVA has deemed to fail and, despite how much you’ve paid into your IVA, you’ll be back to square one and essentially all repayments will not count. If your IVA has failed and you are made bankrupt then the fees to setup the IVA will be added to your debt
• Entering an IVA is more expensive than bankruptcy.
• You will usually need to be able to afford a monthly payment of at least £80.
• The fees of an Insolvency Practitioner are expensive and have to be paid both to set up the IVA and to supervise it.  These will be added to your debt total.  .
• Under the terms of an IVA, the amount allocated for living expenditures is relatively low which makes for tight budgets for the five to six year period.
• If you own a property you will probably be required to re-mortgage it towards the last six months of the end of your IVA terms.  Upon entering the terms of the IVA you’ll have to get a valuation of your house and,  in the fourth year it will be revalued to determine any increase in equity. You will then have to release this equity to your creditors.
• Any pay increases or bonuses that you receive will have to be paid into the IVA.
• You have to declare any windfalls, lottery wins and inheritance to your debtors.  Plus, you’ll have to use this money to pay off your original debt plus interest plus Insolvency Practitioner fees.
• An IVA will impair your credit rating; it is recorded and will remain on your credit file for a period of six years.
• During the period of your IVA you won’t have access to credit.  After your IVA, it will be harder for you to get credit, and you are likely to be charged a higher interest rate from lenders, as well as needing a larger deposit for any mortgages taken out. 
• The majority of IVA’s put through are accepted, however there are no guarantees and creditors are not required to agree with them 
• Your IVA will be listed on the Individual Insolvency Service Register.
• All assets and liabilities must be declared, if you own assets of excessive value, the creditors can ask that they be released for the benefit of the creditors.
• In an IVA you will pay back as much as you can afford over the 5 years (e.g. 20%-50%) as opposed to bankruptcy where you will pay back a minimum amount (which could be as little as 0%).
• All creditors must be included in an IVA and you cannot make separate arrangements with each one (which can be done in a DMP).