An IVA is a deal with your unsecured creditors. You make an offer to pay them a reasonable amount in settlement of their debts and they each vote in favour or against your offer. If they approve the offer then all further interest and charges will be stopped immediately and no further legal action can be taken against you. Provided you keep to your side of the bargain you will be free of your debts at the end of the IVA.

The procedure can be used for relatively straightforward financial problems such as an individual in paid employment with credit card and bank debts but it is also effective for the more complicated situations, such as the self employed where there are both personal and business debts which may include amounts owed to HM Revenue and Customs, and where the business needs to be preserved.

It is customary for IVA’s to last for 5 years but it is possible for the term to be less if the circumstances are appropriate. On the other hand it is very rare that creditors would approve an IVA that would exceed 6 years,

That is a very simple explanation of the procedure but of course it’s a little more complicated than that and in other sections we’ll take you through the detail of the procedure so that you’ll know what to expect.

It is very important for you to understand that an IVA is not the easy option. You’ll be kept to a budget for five years and will have to adhere to the commitments that you make to your creditors. At the end of the IVA your credit rating will reflect that you have been in an IVA, at least for another year, but after that you will be able to request credit agencies to remove these details from your file and your credit profile should improve. By the end of the IVA you’ll have learned how to live without depending on credit and probably for the first time in years you’ll be debt free.

It is also important for you to understand, at this stage, that there is no minimum amount and no maximum amount that you are expected to repay in an IVA. There have been some very misleading advertisements in the past that suggest that you can automatically write off 75% of your debts and even 90% in some cases. An IVA doesn’t work that way. The creditors expect you to repay what you can afford. If in their judgment you make a reasonable offer and if the amount that they will be repaid achieves their minimum criteria, then it is likely that they will vote in favour of the IVA.

It is essential, therefore, that you are truthful in disclosing your financial circumstances and demonstrate a real commitment to making a reasonable offer. Different lenders have different policies when considering IVA’s and so the minimum amount that you will have to offer to your creditors to have it approved varies, depending on who are your creditors. At the moment it is unlikely that an IVA will be approved if the offer to creditors is less than 30% and there is a strong likelihood that will increase to 40% over the next few months.

An experienced insolvency practitioner will be able to help you formulate your offer to creditors, and will be able to guide you on what it should and what it should not contain to give you the very best chance to get it approved.