Individual Voluntary Arrangement FAQs

Individual Voluntary Arrangement FAQs

Here are some answers to your frequently asked questions about Individual Voluntary Arrangements (IVA)s.

What Is An IVA?

An IVA is a formal, legally binding agreement between you and your creditors that replaces your original agreed loan payments and enables you to make monthly repayments that satisfy their criteria.

What Is The Purpose Of An IVA?

The purpose of an IVA is to help a person who is struggling to pay off large unsecured debt come to an arrangement with their creditor about future payments. The IVA will specify the amount and level of future payments in order that debts are reduced and the creditor receives regular monthly payments.

How Is An IVA Calculated?

An IVA is calculated by working out what you can afford to pay when taking into account your living expenses and other debts. This amount has to be agreed by your creditors in order for the IVA to become operational.

How Do You Qualify For An IVA?

Here are some criteria for qualification for an IVA:

  • In regular employment (including self-employed)
  • Resident in England, Wales or Northern Ireland
  • Total debts of more than £15,000
  • Money owed to more than three lenders
  • Struggling to make monthly repayments

How Is An IVA Arranged?

An IVA is arranged in conjunction with an insolvency practitioner who will draw up a proposal on your behalf. The document will give creditors a breakdown of your financial circumstances and outlines a proposal covering the amount of money you can afford to pay and the time period you can afford to pay it over.

How Much Does An IVA Cost?

The cost of an IVA depends on the amount of work required by the insolvency practitioner. They would charge a fee which is added to the IVA arrangement and forms part of your monthly payments. You will not have to pay an additional fee to the insolvency practitioner.

How Long Does It Take To Set Up An IVA?

The process for setting up an IVA is around two months in total. This includes notice times for creditors, consultation, negotiation and finalising.

What Happens At The End Of An IVA?

Once the term of the IVA has been completed, you will be free from debt even though all the original debt may not have been repaid: your creditors will be legally bound to write-off the outstanding unpaid debt as specified in the IVA. A certificate of completion will be issued by your insolvency practitioner or debt management professional which will be reflected on your credit file.

How Will An IVA Affect My Credit Rating?

The establishment of an IVA will be noted on your credit history and it will stay on your records for approximately six years. You will not be able to apply for credit during that time and so the effect of establishing and IVA is poorly reflected in your credit rating.

Alternatives To An IVA

There are other alternatives to an individual voluntary arrangement which are:

  1. Debt Relief Orders
  2. Debt Management Solutions
  3. Bankruptcy

You should consult with a professional debt company before making a decision.

Equity Release To Supplement Retirement Income

Equity Release To Supplement Retirement Income

Most people who have retired will have a steady stream of income that comes from their state pension, their private pension or a defined benefit work pension. Some people may rely on their savings to create an income, and others may have property investments that provide rental income. There are numerous forms of retirement income, and many people are satisfied with what they have.

However, there might be reasons that prompt people to become interested in releasing equity from their properties in order to provide a supplementary – or primary – source of income. These could include:

  • Current level of income is insufficient.
  • Do not want to move home in order to release money.
  • Would like to make use of the money that is locked in their homes.
  • Would like to treat themselves to a new car, good holiday or make some home improvements, etc.
  • Would like to treat their family or friends, and to be able to share in the enjoyment of their treat.

Easy Way To Help With Your Retirement

Taking out a Lifetime Mortgage, or other form of equity release plan, can enable you to release money from your property without having to make any substantial monthly payments. The money you have loaned will be paid back when your property is sold (typically, when you move into care) or when you die.

The only monthly payments you may need to worry about are those that are associated with a Retirement Mortgage which is a cross-over between a conventional mortgage and an equity release mortgage: you will have to pay the monthly costs of the interest on your loan.

Deferring the State Pension

Deferring the State Pension

You are not obliged to draw all of your State Pension when you reach the State Pension Age – you can defer the payment of your State Pension and, in doing so, receive a higher benefit in the future. However, it is only possible to defer receiving the State Pension once.

Options for Deferring the State Pension

There are two options available to you if you opt to defer your State Pension payments, and both have conditions that must be met.

1. Increased Your Income

You will receive an increased income if you defer your pension as follows:

  • Your pension is deferred for a minimum of five weeks.
  • For each weak your pension is deferred, your income will be increased by a rate of 0.2% per (1% for every five weeks of deferral). This equates to 10.4% per annum.
  • Once the deferment ends, you will begin to receive your higher payments, as normal.
  • The higher payments you receive will be increased each April at the same rate as the State Pension.

2. Receive A Lump Sum Payment

  • If you defer your pension for at least twelve months then you will be able to choose whether to benefit from your deferment in the form of increased income (as outlined above) or receive a lump sum payment.
  • The lump sum will be equivalent to the amount of pension you would have received plus an interest payment of 2% above the Bank of England base rate.
  • Once the deferral period ends, you will begin to receive your higher payments as normal.

Tax Benefit Of Lump Sum Payment

The lump sum you receive cannot move you into a higher tax bracket; it will be taxable at the same rate as any other part of your income. For example, if your taxable earnings are below your personal allowance at the time the lump sum is paid, it will be paid tax free even if the value of the lump sum pushes your earned income over the personal allowance threshold which, ordinarily, would have resulted in an extra tax charge.

Three Months To Choose

You have a maximum of three months to choose whether you wish to take the deferred amount as an increased income or as a lump sum.

Eligibility To Defer Your State Pension

  • There are a number of conditions that prevent you from building up extra Basic State Pension or a lump-sum payment whilst deferring your benefit. If you have spent any days in prison after conviction of a criminal offence or you receive any of the following benefits, you will not meet the conditions:
  • other State Pensions (not including Graduated Retirement Benefit or shared additional pension)
  • Pension Credit
  • Income Support
  • Employment and Support Allowance (income based)
  • Universal Credit
  • Carer’s Allowance
  • Short-term Incapacity Benefit
  • Severe Disablement Allowance,
  • Un-employability supplement
  • Widow’s Pension
  • Widowed Mother’s Allowance
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