An Individual Voluntary Arrangement (IVA) enables you to reduce the monthly payment that you make towards your unsecured debts to fir within a budget that you can afford. Until 2013 it was unusual to be able to start this type of plan unless you could afford to pay at least £150 per month towards your debts.

However more and more companies are now prepared to allow you to start an Arrangement if all you can afford to pay is £100 a month or in some cases even lower.

This is a welcome development if you are struggling with debts but have little disposable income as it has opened up the possibility of starting an IVA whereas before this would not have been an option.

Why will creditors agree to such low IVA payments?

The payments you make into an IVA will normally last for 5 years (possibly 6 if you are a home owner). As such if you are only paying £100 a month then throughout the life of the arrangement you are only likely to repay £6000 in total towards your debts.

Your creditors will agree to write off any debt that you still owe after your final payment is made. Therefore if you owe much more than £6000 it is easy to see that your creditors could be agreeing to write off a considerable amount of debt for you. So why are they prepared to do this?

The answer is that they will always compare what they are likely to get back from you to what they would get if you went Bankrupt.

If you declare bankruptcy you are only required to make a payment towards your debts for a maximum of 3 years.  Therefore if you have disposable income of £100 per month your creditors would be better off receiving this for 5-6 years in an IVA than see you go bankrupt and get even less back.

Do you want help to start an IVA? Give us a call on 0800 077 6180 or complete the form below to speak to one of our experts

Is a £100 per month IVA better than starting a DMP?

One of the main alternatives to an IVA is a Debt Management Plan (DMP). However the main downside of this solution is that you have to continue paying your debt every month until everything you owe is paid in full. As such if you can only afford to pay £100 per month this could take many years.

In contrast you will only have to pay into your IVA for a maximum of 5-6 years. After that time any debt that is not repaid is written off by your creditors. As such it is clear that you will often become debt free far more quickly if you use this type of Arrangement and on this basis it would be a better option.

Having said that there are a number of reasons why you might still want to use the DMP solution. Firstly if you are a home owner there is no obligation to releasing equity from your property.

Secondly if you are concerned that you might not be able to sustain your payments it is often better to use the Plan because it is very flexible. If you do find that you are struggling you can change these relatively easily.

Is a £100 a month IVA a better option than Bankruptcy?

If you are in a position where you are struggling with your debts and you can only afford repayments £100 or less then you should always consider the option of Bankruptcy.

The main reason for this is that if you go bankrupt you will only have to make your payments for 3 years which is 2-3 years less than in an IVA. In addition if you are unable to afford to make payment at all then you will not have to do so.

However bankruptcy is not right for everyone. Generally you should not go bankrupt if you are a home owner with equity in your property as your home could well be put at risk as your share of any significant equity will have to be released from it.

Of course if you are a home owner then you also have to agree to try and release equity from your property in an IVA. However the risks to your home are lower as if you are unable to release equity your monthly payments will normally simply be extended for 12 months and your property will be excluded from the arrangement.

BMD Tip: Another issue with bankruptcy if you are only able to afford £100 or less towards your debts each month is the upfront fee that you will have to pay.  This is a significant sum which could take you a number of months to save for. There are no initial costs with an IVA and you can start the arrangement immediately simply making your agreed monthly payment.