IVA variations – what are they?

An Individual Voluntary Arrangement (IVA) is a formal financial agreement designed to help you get out of debt – usually in 5 years (although this may vary depending on the terms of the agreement, and whether you miss any payments throughout its duration).

An IVA could be suitable for you if you have a high level of unsecured debt that you can’t afford to repay but that you can commit to making regular reduced payments towards.

An IVA works by calculating your monthly disposable income (total income minus essential expenditure, such as mortgage payments, secured debt repayments and utility bills) and paying it to your IP (Insolvency Practitioner) – who will subsequently distribute funds amongst your creditors according to how much you owe each of them.

If you can make those payments for as long as agreed, your creditors will write off any outstanding debt at the end of the agreement. Be aware that entering an IVA will seriously affect your credit rating for 6 years.

A possible downside, however, is that no-one can guarantee their financial circumstances will remain as they are forever – but if you’re confident that they’re not likely to change too much over the next 5 years, then an IVA may be worth considering.

What happens if my circumstances change?

Unfortunately, unexpected changes can occur, and they could affect your ability to make payments to your IVA. If a substantial change in your circumstances does take place, an IVA variation may be appropriate.

An IVA variation is a new proposal requesting changes to the way you’re repaying your debts – to help you ensure you can still bring the IVA to a successful conclusion.

How does an IVA variation work?

As you may be aware, your IP will be responsible for supporting you throughout the course of your IVA. They will also be there to act in the best interests of both you and your creditors – and this may include negotiating for an IVA variation should it be deemed necessary.

If your IP believes an IVA variation is the best option for you, they will work with you to draw up a new proposal, which will be reviewed by your creditors. Your IVA variation must – like the original IVA proposal – be approved by voting creditors who collectively ‘own’ 75% or more of your total debt.

However, your IVA variation may be rejected. If this happens, and there is no way you can carry on under the terms of the current agreement, your IVA will fail. In this situation, you may want to look into an alternative debt solution, such as a debt management plan or even bankruptcy.