Do IVAs freeze interest on my debt?

An IVA (Individual Voluntary Arrangement) can be an effective debt solution for people struggling with unmanageable debt. It enables you to repay as much of your debt as you can afford over an agreed period of time, after which the remaining debt will be written off - and as such it can be the ideal debt solution for people who can see no way of repaying their debts in full.

However, an IVA does have a significant impact on your credit rating, as well as other disadvantages - so you should only go ahead if you are sure it`s the right debt solution for you.

How IVAs work

Before you apply for an IVA, you`ll need to speak with an Insolvency Practitioner (IP), who will assess your situation to establish whether an IVA is right for you. If they decide that it is, they will work with you to draw up an initial IVA proposal, which will set out the proposed terms of the IVA (e.g. how much you can afford to pay to each lender, and over what period of time).

This proposal will be sent to your lenders, who will be invited to `vote` on the terms. Of lenders who vote, 75% (by debt value) must approve the terms for the IVA to go ahead. If this happens, everyone - including any non-voting lenders and lenders who voted against the terms - will be bound by the IVA.

Once your IVA begins, you`ll make regular payments (usually once a month over five years, although this can vary according to what is agreed with your lenders). On successful completion of the IVA, you`ll be legally debt-free, as far as unsecured debts are concerned (an IVA can`t write off certain debts, such as a mortgage).

There are a few things to remember with an IVA, though. You`ll have very little spare income for the duration - and you`ll usually be expected to give up most of any increase in income while your IVA is ongoing. And if you`re a homeowner, you may be required to release some of the equity in your home in the 54th month (half way through the final year) of the IVA.

Will I still have to pay interest and other charges?

It`s true that your lenders will freeze interest on your debt once your IVA has started. However, this isn`t necessarily a factor, as the terms of your IVA will state - before the IVA even starts - how much you`ll have to pay over the course of the IVA. You`ll simply be repaying a set percentage of your debts based on what you can afford.

If you are struggling with unmanageable debts and would like more information on IVAs and how they could help you, click here or speak with our debt advisers on 0800 195 2911.

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