Can I get an IVA if I have bad credit?

If your problems with debt have become so bad that you can`t see yourself ever repaying your debts, then one option could be an IVA (Individual Voluntary Arrangement).

What is an IVA?

An IVA is a legally binding agreement between you and your lenders in which you will repay a percentage of your debts (as much as you can afford), and write off the rest.

Before you can enter into an IVA, you`ll need to work with an Insolvency Practitioner (IP) to draw up an IVA proposal. This proposal outlines how much you can afford to pay each of your lenders, as well as other terms such as the proposed duration of the IVA.

This proposal will be sent to your lenders, who will be invited to `vote` on the terms. Lenders accounting for at least 75% of your total debt must approve the terms for the IVA to go ahead. If this happens, your remaining lenders will also be bound by the terms.

You will then begin making regular payments, usually every month, to your Insolvency Practitioner, who will distribute the agreed amounts between your lenders. This will normally continue for five years.

While the IVA is ongoing, you may be required to give up some of any rise in income received to put towards the IVA. If you are a homeowner, you may also be expected to release some of the equity in your home half way through the final year.

On successful completion of the IVA, you will be legally debt free.

IVAs and your credit rating

Your credit rating is not necessarily an important factor when your creditors are deciding whether to accept the IVA proposal (although if you have borrowed a lot of money recently, or if you have shown signs of irresponsible borrowing in the past, your lenders may take more notice).

On the whole, your lenders will simply want to see that you are capable of keeping up with your IVA payments.

The rules of an IVA minimise the risk of you missing payments - you will not be able to borrow more than a small amount of money without notifying your IP (although realistically, most lenders will not offer credit if they see you are on an IVA), and your payments will fit around your essential commitments.

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