How will an IVA affect me?

Last Modified 16th of February 2021

An Individual Voluntary Arrangement (IVA) isn’t to be taken lightly – it’s a legally binding agreement involving you and your creditors. It’s designed to help you pay off debts and start your journey towards becoming completely debt-free and, ultimately, improving your credit rating in the long run. An IVA can affect you in a number of ways and should only be considered if you have a regular guaranteed income in the long term, as it can stay on your file for 6 years.

Here are a few ways an IVA can affect you:

Your job

If you work, or have aspirations to work in fields such as property, accountancy, law, finance, the police or armed forces then your job could be affected. Some employment contracts say you can’t continue to work at your company if you start an IVA. It’s a great idea to talk to your HR manager about your situation and what this means for your job – they may treat you as an exception, especially if you’re a good employee.

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Financial restrictions

There are quite a few financial restrictions placed on you during the terms of your IVA. It will stay on your credit file for a minimum of 6 years, starting from the date the IVA starts. If you come into any extra money during your IVA then you have to declare it. This includes inheritance, pay rises, bonuses and windfalls. The same goes for any additional assets such as houses, cars and so on. They may be used to pay off some of the IVA, as well as your regular repayments. You can’t take out any credit above £500 when you have an active IVA, although this can be a blessing in disguise as you’ll avoid further debt.

Lifestyle changes

If you have an IVA then the chances are you’ll be sticking to a tight budget for the next 5 years at least. You may have to cut back on holidays, entertainment and other such luxury items. But in the long term this can do wonders for your financial situation and teach you a valuable lesson about money management.

Public knowledge

All IVAs are on the Insolvency Register, which is accessible by the public. So if you don’t want people finding out about your financial situation then it’s best to avoid applying for an IVA. This is especially important if you plan to run a business as investors will be deterred by your IVA, even after you’ve finished paying it because it’ll still be on your credit file. An IVA stays on the Insolvency Register for 3 months after the end of your IVA.

IVAs and your home

You shouldn’t need to sell your home if you have an IVA, but you may have to remortgage your home 6 months before the end of your IVA to release equity (which will be paid towards your IVA). If you do remortgage then, as a general rule, you shouldn’t have to mortgage over 85% of the value of your home. However, remortgaging your home when you have an IVA is fairly uncommon.

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IVAs and your car

Normally, people with IVAs keep the car they own. But if it’s worth a lot of money or you have 2 or more vehicles your Insolvency Practitioner may suggest that you downgrade to a less valuable car and sell your current vehicle to cover your IVA. Creditors might even suggest you sell it so you can use the capital to pay them back. If you have a hire-purchase car then you’ll usually be allowed to keep it – but it’s a good idea to check with the hire-purchase company first. If you finish paying off your car before the end of your IVA then the extra money you would normally use to pay for your car will go towards your IVA.