How Much Does an IVA Cost?
- See also:
- How to Start an IVA
- IVA Overview
- IVA Advice
- IVA Approval Process
- IVA Criteria
- IVA FAQs
- Bankruptcy or IVA
- How an IVA works
- Scottish Trust Deeds
- authorised debt settlement
- comparison matrix
- apply online
The essence of an IVA proposal is that the debtor puts forward whatever they can afford in order to pay off their creditors. This means that the funds that need to be contributed into the IVA will vary on a case-by-case basis depending on what assets the individual has, and how much money they can afford to put towards their finances each month (i.e. monthly income minus monthly expenditure).
It is possible, however, to apply some rules as to what the minimum contributions need to be in order to present an acceptable proposal to the creditors. From experience it tends to be the case that an IVA will be rejected if the creditors get less than 20-30% of what they were originally owed.
Minimum Monthly Payments From Income
The most common type of IVA consists of 60 monthly payments made into a fund over a five year period. The following tables show what the minimum contribution would need to be for a variety of levels of debt. It assumes that the creditors would get back at least 20% of what they were initially owed:
| Total Debts Min | Monthly Pmts | Total Paid into IVA |
|---|---|---|
| £80,000 | £450 | £27,000 |
| £70,000 | £408 | £24,500 |
| £60,000 | £367 | £22,000 |
| £50,000 | £325 | £19,500 |
| £40,000 | £283 | £17,000 |
| £35,000 | £263 | £15,750 |
| £30,000 | £242 | £14,500 |
| £25,000 | £221 | £13,250 |
| £20,000 | £212 | £12,727 |
| £15,000 | £212 | £12,727 |
Important: Actual monthly payments into an IVA are based on what an individual can afford. This table shows only what the minimum acceptable payments could be.
Note: for an IVA that is paid entirely out of income, there is a minimum payment of around £200-300 per month. This is so that the total contributions are enough to cover the fees of running the IVA, and still have sufficient funds to make a significant pay out to the creditors.
Monthly Payments From Income Plus Lump Sum Contributions
It is also possible to make lump sum contributions for example from the sale of a car or the remortgage of a property. As a guideline, as long as the combination of lump sum and monthly payments adds up to at least the value in 'Total Paid into IVA' above then the IVA may prove acceptible.
Dealing With a Property in an IVA. What happens to my home?
Under bankruptcy, if an individual owns a property it is very likely that they will be forced to sell it. Under an IVA the individual is not forced to sell their property, however if there is an equity available in the property (i.e. the value of the property is greater than the total of the mortgage and any other loan secured against it), then the creditors will look to release this equity and contribute it as a lump sum towards the IVA.
There are, however, exceptions to this. For example:
- The equity is nil or negligible.
- There are redemption penalties, or similar, which would make the sum raised nil or negligible.
- The nature of the borrowing against the property is such that it is not possible to release the equity.
- The payments from income alone are enough to satisfy the creditors.
In these exceptional circumstances it is possible to propose that no lump sum be paid from the property.
Full and Final Settlement Without Payments From Income
There are certain situations where the individual is able to raise a significant lump sum, but unable to make monthly payments from income. For example, they may be able to remortgage their property or sell off an investment product. In this situation it is possible to offer Full and Final Settlement from a one-off lump sum.
The following tables show what the minimum contribution would need to be for a variety of levels of debt. It assumes that the one-off lump sum would be paid within 3 months, and that the creditors would get back at least 30% of what they were initially owed:
| Total Debts | One-Off Payment |
|---|---|
| £80,000 | £28,113 |
| £70,000 | £25,113 |
| £60,000 | £22,113 |
| £50,000 | £19,113 |
| £40,000 | £16,113 |
| £35,000 | £14,613 |
| £30,000 | £13,113 |
| £25,000 | £11,613 |
| £20,000 | £10,281 |
| £15,000 | £10,281 |
Important: Actual monthly payments into an IVA are based on what an individual can afford. This table shows only what the minimum acceptable payments could be.
Insolvency Practitioner Fees
Most of the leading Insolvency Practices in the UK now do not charge fees for setting up IVAs, instead they agree with the creditors to take their fees from the funds paid into the IVA.
Hence, in addition to the distributions to the creditors, the IVA funds need to cover the Insolvency Practitioner's (IP's) fees and expenses. It is normally understood that it is the creditors who agree how much of the IVA fund can be used to pay for the IP to set up the IVA and supervise it for a period of five years. As a guideline IP fees range from £4,000 to £15,000 based on factors such as the number of creditors or the size of the debt.
To some people these IP fees seem at first to be quite high. However an Insolvency Practitioner is a highly qualified and experienced role and there is a significant amount of work to do to set up the contract and supervise it for a five year period. Equally, these fees tend to be less than the court costs and Official Receiver fees involved in a bankruptcy. Hence this at the moment is the most economical to resolve the situation. There is a proposed new structure called an SIVA (Simple IVA) that will enable fees to be reduced, however this legislation is not expected to be introduced until the end of 2006.
Creditors will reject an IVA if they see that the majority of the funds paid into it are going towards the Insolvency Practitioner's fees. As a guideline, at least 60% of funds paid into an IVA must be paid towards the creditors.
To enquire about or apply for an Individual Voluntary Arrangement call 0800 138 5445, or complete the enquiry form.
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