If you have taken out an individual voluntary arrangement (IVA) or are planning to, it’s important you completely understand the requirements of how you have to pay it back. Here is some guidance on reimbursing your loan provider through your IVA – read on so you know everything you need to about this form of financial help.

Arranging the contract

When you enter into an IVA, you come up with a payment plan with your creditor. This will see you give them a set amount of money every month for an agreed period of time, which is typically five years.

The arrangement imposes a number of restrictions on both parties – you and the creditor – so neither one can change the plan once it has been agreed to. This means you have to keep paying the fixed amount of cash until the term of the contract has expired. Similarly, the creditor is bound to stick to the agreement, which means they cannot add interest, impose extra charges or make any alterations to the repayment plan at all.

Importance of repayments

As the contract stipulates you have to make regular repayments every month for a set period of time, you must adhere to this arrangement, as there are serious consequences if you don’t. Your creditor has agreed to the IVA (which will see you repay less than the amount you owe in the long run) on the condition you will pay back what you have agreed to.

If you fail to make a repayment, you have broken the terms of the contract, in which case your creditor is able to claim the entire amount of debt you owe them and not just the figure stipulated in the IVA. Of course, should this sum of money be out of your grasp, you could risk facing even more serious financial difficulties in the future, including bankruptcy.

Keep paying until your debt is clear

Once you make an IVA, you and your creditor will decide what sum you will repay, which can often be significantly less than what you owe. However, you will remain indebted to them until you have paid off the agreed figure.

Until you have totally finished paying off this amount, you will face debt-related problems. This includes finding it difficult to get a good credit rating, being accepted for a mortgage or taking out a credit card or loan. However, once you settled your debt, you will have the chance to improve your credit rating. If, on the other hand, you declare yourself bankrupt and clear your deficit straightaway, you will have to wait six years before this is taken off your credit file – and then it may still have negative consequences for many more years.

How to pay your IVA

The best way to ensure you never miss a repayment – and subsequently break the term of the contract – is to set up a direct debit to your creditor. If you arrange it so the money comes out on or just after payday, you can manage your finances more easily.

This way, the cash will leave your bank before you know it, enabling you to work out how much money you have left for the rest of the month. Keeping it in your account for a while may give you a false impression of how much cash you have available, and therefore you may be tempted to spend it. If it goes as soon as it arrives from your employer and you budget the rest of your finances to last until your next payday, you will find it far easier to repay your creditor without facing further financial difficulties.

Future impacts

The restriction of not being able to get mortgages with an IVA has long been one of the biggest drawbacks to entering into an IVA. Many people think that it’s a total block, but there are still some lenders out there who will offer mortgages to customers who are in the process of trying to sort out their finances.

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