What are the risks involved with an IVA?

Last Modified 16th of February 2021

As with most things, Individual Voluntary Arrangements (IVAs) aren’t completely risk-free. There are many advantages, but there are also a few disadvantages of IVAs to take into consideration. An IVA itself isn’t to be taken lightly so it’s a good idea to do your homework before applying.

No guarantee

Unfortunately, not everyone is guaranteed to get an IVA. The Citizen’s Advice Bureau states an IVA could be right for you if you have at least £100 disposable income per month, debts with at least two separate creditors and if you don’t want to negotiate with your creditors directly. Although IVAs are available to people with debts as little as £6,000, CAB suggests you’ll be in with a greater chance of being approved for an IVA if your debts are £10,000 and over.

To get approved for an IVA, at least 75% of your creditors must vote in favour. This is a very high percentage and can be very risky.

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Losing your job

If you work as an accountant, solicitor, in the armed forces or police then it’s highly advisable to check your contract of employment before applying for an IVA. Some contracts state that you could lose your job if you have an IVA.

Affects your credit score

From the day the agreement starts, an IVA will be on your credit file for 6 years. This means you can’t borrow anything above £500 and it can make borrowing difficult even after the IVA has cleared on your file. If you do apply for credit during your IVA, then it will have to approved by the supervisor (usually the Insolvency Practitioner). If the credit isn’t approved then this could breach your IVA contract and cause it to fail.

Remortgaging your home

Even though you won’t necessarily have to sell your home, you may have to remortgage it. An IVA usually means you have to give up any savings and any endowment connected to your mortgage. This can happen at the start or end of your IVA agreement – usually during the last 6 months of your IVA. Remortgaging your home could also mean you pay higher interest rates.

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If you don’t keep up with IVA repayments and your IVA fails then there’s a high chance you’ll have to file for bankruptcy. The original fees used to set up your IVA are added to your debts.

Strict budget

An IVA requires you to live on a tight budget for five years. If you come into any extra money such as work bonuses, pay rises, windfalls and inheritances, you have to declare it so your repayments can be readjusted accordingly. The IVA is also recorded on the Individual Insolvency Service Register, which is available for the public to view.