IVAs - how much would one cost?

If you're carrying a significant amount of unsecured debt and can't afford to keep up with your repayments, an IVA (Individual Voluntary Arrangement) can allow you to repay as much of your unsecured debt as you can afford over an agreed period of time. This is usually five years, and at the end of this time, your creditors will write off any remaining unsecured debt and you will be debt free - assuming you've kept up with your side of the agreement.

It's a legally binding financial agreement, which means that once your IVA begins, your lenders will be bound by the terms and won't be able to pursue you any further for the money you owe (unless, of course, the IVA fails). Although this does give you protection, it works both ways, because you are required to keep up with your monthly payments - and if you can't, the consequences may be serious (your IVA may fail, for example, and you may have to find an alternative way to clear your debts, perhaps even declaring yourself bankrupt).

Plus, entering an IVA will have a significant impact on your credit rating - and if you're a homeowner you may have to release equity from your home so you can contribute more towards your debts. So you should only enter an IVA if you are certain it's the best option for you.

How much would my IVA actually cost?
If you're thinking about entering an IVA, you'll be wondering how much it would cost you each month (in both fees and payments towards your debts). Well, the simple answer is: it depends primarily on how much you can afford to pay.

You will pay the same amount every month towards your IVA, and all fees and costs will come out of your payments - so, if your IVA does go ahead, your payments won't be made any less affordable by the fees you are required to pay.

Monthly payments
The monthly payments you make on your IVA will be worked out by looking at how much of your income is left after you have taken care of your essential costs (your mortgage/rent payments and food costs, for example, and your household bills).

So, to put this into figures, take a look at the following example:

•    If your income is £1,000 per month and your essential costs take up around £700 of this money, you'll have around £300 a month left over to pay towards your debts.
•    The agreed amounts will be shared out amongst your creditors on a 'pro rata' basis (i.e. according to how much you owe each of them).

Other costs/fees
There will be an initial fee that pays for the set-up of your IVA. You may pay this straight away, but in reality, many borrowers pay this as part of their monthly payments (depending on what their creditors agree to).

After your initial fee, a 'supervisor fee' will be charged each month to pay for the ongoing administration of the agreement. Again, this will usually be taken out of your monthly payment.