IVAs and Income Support

An Individual Voluntary Agreement (IVA) is one of several solutions aimed at those who have found themselves struggling to pay back debt. Generally, individuals are required to have at least £12,000 of unsecured debt, and are insolvent (ie their essential expenditures and debt repayments are more than their monthly income).

IVA Approval Process

In order for an IVA to be approved, a licensed Insolvency Practitioner (IP) will first assess the debtor’s finances to establish an affordable monthly amount that could be repaid to the creditors. This will take into account all essential expenditure, and so rent/mortgage payments, bills and food will all still be affordable. This information is then presented to the creditors involved who will then vote on whether or not they agree to the terms of the IVA. In most cases, creditors of at least 75% of the value of the debt must agree in order for the application to be successful. As at the end of the IVA term, which is usually 5 years, any outstanding debt will be cleared, creditors will only agree to an IVA if they feel that the total amount of money they will get back is more than if the individual declared themselves bankrupt.

IVA and Income Support

As an IVA is a legally binding agreement, applicants must be able to demonstrate that they can maintain the agreed monthly repayments, as failing to do so could result in a failure of the IVA and the creditors may then petition for bankruptcy. Therefore, an individual on Income Support is often unlikely to be eligible for an IVA, as income support is often means tested and may barely cover essential expenses as it is. Furthermore, there may be a change of circumstances resulting in income support ceasing. As a result, it would be too much of a risk for the creditors to take on.

Alternative Solution

It may be, in the event of an individual finding themselves struggling with debt repayments who are on Income Support, that Bankruptcy may be a more suited option. There is usually an initial fee of £700, which is made up of court and administration fee. The advantage of Bankruptcy nowadays is that it usually only lasts for 12 months, although it will remain on the credit record for 6 years. On the other hand, obtaining further credit may be difficult as a result.

Further Advice

For anyone who is struggling with debt and on income support, it is important to seek advice on the best solution. There are a number of charitable organisations that may be able to help that do not charge a fee, such as the National Debtline, the Citizens Advice Bureau (CAB) or the Consumer Credit Counselling Service (CCCS) to name a few.