Understanding IVAs: What Debts Can You Include?

An Individual Voluntary Arrangement (IVA) can be a lifeline for individuals struggling with overwhelming debt. It offers a legally binding agreement to repay a proportion of what you owe over a set period, typically five to six years. At the end of the arrangement, any remaining eligible debt is usually written off, providing a fresh financial start. However, a crucial aspect of setting up an IVA is understanding which debts can and cannot be included in the proposal. Getting this right from the outset can save a lot of potential hassle down the line.

What is an Individual Voluntary Arrangement (IVA)?

Before diving into the specifics of which debts can be included, it's important to understand what an IVA is. Essentially, it's a formal insolvency solution for individuals who are unable to repay their debts. It involves proposing a repayment plan to your creditors, which, if accepted by the majority (75% of the value of creditors who vote), becomes legally binding on all creditors. An IVA is managed by a licensed Insolvency Practitioner (IP), who will guide you through the process and distribute your payments to your creditors.

Debts That Can Be Included in an IVA

The primary purpose of an IVA is to consolidate and manage unsecured debts. Most common types of unsecured debts can be included:

• Credit Card Debt: Balances on standard credit cards.
• Personal Loans: Unsecured loans taken out from banks or other lenders.
• Store Card Debt: Balances on cards specific to particular retailers.
• Overdrafts: Unarranged or arranged overdrafts on your bank account.
• Catalogue Debt: Money owed to catalogue companies.
• Payday Loans: Short-term, high-interest loans.

These are often referred to as 'non-priority' debts. Once your IVA is approved, it's common for priority debts to also be included, such as:

• Council Tax Arrears: Unpaid council tax bills.
• Utility Bill Arrears: Outstanding amounts for gas, electricity, water, and sometimes phone bills if they are significantly in arrears.
• Tax Credit Debt: Overpayments or arrears related to tax credits.

There is no upper limit to the amount of debt that can be included in an IVA. However, it's generally considered more suitable for individuals with at least £7,000 of qualifying unsecured debt owed to two or more creditors. While you can include many types of debt, some are specifically excluded.

Debts That Typically Cannot Be Included in an IVA

Certain debts are considered too significant or of a different nature to be included in an IVA. These often include:

• Student Loans: These are generally written off after a certain period of time or under specific circumstances, and are not typically included.
• Child Maintenance Arrears: Obligations to pay for child support are usually outside the scope of an IVA.
• Court Fines: Fines imposed by a court are also excluded.
• Hire Purchase Agreements and Conditional Sale Agreements: While you might be able to continue paying for these, the outstanding balance may not be fully incorporated into the IVA, as the goods are secured against the debt. Your IP will advise on how best to manage these.
• Mortgages and Secured Loans: While you can propose to continue making mortgage payments or payments on secured loans, the secured creditor has the right to repossess the asset (e.g., your home or car) if they don't agree to the IVA or if you fall behind on payments. It's unlikely a secured lender will agree to include the full outstanding balance in an IVA, as they have other means of recovery.

If you have these types of debts, you will likely need to continue managing them separately alongside your IVA payments.

Can You Add Forgotten Debts to an Existing IVA?

It's common for people to forget about smaller debts or debts that have been passed to debt collectors when initially setting up their IVA. Fortunately, there are provisions for this:

Forgotten Debts Under 10% of Total Debt

If a forgotten debt is less than 10% of your total debt included in the IVA, your Insolvency Practitioner (IP) can usually add it to the arrangement without needing to go through a formal variation process. These are often referred to as 'unknown creditors'. The IP will simply update the records and include this debt in the distribution of payments.

Forgotten Debts Over 10% of Total Debt

If the forgotten debt is larger than 10% of your total debt, it becomes more complex. Adding such a debt requires a formal variation of your IVA. This means that all your existing creditors, as well as the creditor of the forgotten debt, will need to vote on the proposed change. For the variation to be approved, 75% of the value of the voting creditors must agree. If they agree, it often means the IVA will be extended, typically by an additional 12 months, to accommodate the increased debt burden.

What if Creditors Say No to Adding a Debt?

Your creditors are not obligated to agree to a new debt being added to your IVA, especially if it's a significant amount. If they refuse, the forgotten debt will not be included in the arrangement. You will then be responsible for making separate arrangements to repay this debt, usually after your IVA has concluded. In some cases, creditors might agree to add the debt if they are compensated, perhaps through an extension of the IVA's repayment period.

Can You Add New Debts to an Existing IVA?

Adding a completely new debt that you've incurred *after* your IVA has started is generally more difficult. This could be due to an unexpected emergency, like a payday loan taken out during a financial crisis, or a mortgage shortfall following a repossession. Your IP must be informed immediately. As with forgotten debts exceeding 10%, a formal variation of the IVA is usually required, necessitating creditor approval. Many IVA companies are reluctant to add new debts, as it can complicate the arrangement and potentially reduce the returns for existing creditors.

What Happens if a New Debt Cannot Be Added?

If your creditors refuse to allow a new or significant forgotten debt to be added, or if you find yourself unable to manage the payments for both the IVA and the new debt, your IVA may fail. If your IVA fails, you will revert to dealing with your debts individually. However, this doesn't mean all hope is lost. You might need to explore alternative debt solutions, such as a Debt Relief Order (DRO), bankruptcy, or a Debt Management Plan (DMP), depending on your circumstances. Consulting with your IP or a debt advice charity is crucial in such situations.

The Importance of Listing All Debts Initially

Given the complexities of adding debts later, the most straightforward approach is to ensure all your debts are identified and included in your initial IVA proposal. This significantly reduces the risk of complications, creditor disputes, or the need for IVA variations down the line. Thoroughly reviewing your credit file is an excellent way to identify all outstanding debts before submitting your IVA application.

Key Considerations for Your IVA

Here's a quick summary of what to keep in mind regarding debts in an IVA:

Frequently Asked Questions

Q1: How much debt do I need to have to qualify for an IVA?

While there's no strict upper limit, IVAs are generally considered for individuals with at least £7,000 of unsecured debt owed to two or more creditors. For smaller amounts, other solutions like Debt Management Plans might be more appropriate.

Q2: What happens to debts not included in my IVA?

Debts that cannot be included in your IVA, such as student loans or court fines, remain your legal responsibility. You must continue to manage and repay these debts separately, alongside your IVA contributions. Failure to do so could have separate consequences.

Q3: Can my IVA be extended if I add a forgotten debt?

Yes, if a forgotten debt that is significant (over 10% of your total debt) is successfully added to your IVA through a formal variation, it is common for the IVA term to be extended, often by an additional 12 months, to accommodate the increased repayment amount.

Q4: What is the role of an Insolvency Practitioner (IP)?

An IP is a licensed professional who manages your IVA. They assess your financial situation, propose the IVA to your creditors, administer the arrangement, collect payments from you, distribute them to creditors, and ensure the terms of the IVA are met. They are your primary point of contact throughout the process.

Q5: What if my IVA fails?

If your IVA fails (e.g., you can no longer afford the payments, or creditors have grounds to annul it), it will be terminated. You will then be liable for the full amount of your original debts, plus any interest and charges that may have accrued. Your creditors can then take action to recover the outstanding amounts, which could include bankruptcy proceedings.

Navigating the complexities of debt solutions like IVAs can be daunting. Understanding precisely which debts can be included is a vital first step. For personalised advice tailored to your specific financial circumstances, it is always recommended to seek guidance from a qualified Insolvency Practitioner or a reputable debt advice charity.