An Individual Voluntary Arrangement (IVA) can be an ideal solution for resolving personal debt problems. Using this type of solution means that you pay what you can afford for five or six years and then any unpaid debts are written off for good.

This may sound like an ideal scenario. However before you start you must fully understand the solution and all the affects it will have on you. We provide the answers to some important questions.

1. What will an Individual Voluntary Arrangement cost?

You cannot implement an IVA yourself. You need a special financial expert called an insolvency practitioner (IP) to help you. The IP you chose does not do the work for free. They will charge fees to put the agreement in place and then  manage it on your behalf.

However the important thing to understand is that you do not have to pay any extra to cover these fees. They are simply deducted from the standard payment that you make each month. As such whether or not you can use this type of debt solution is not dependent on whether you can afford to pay a fee.

Some Companies do charge an extra fee to take on your case often called an instruction fee or drafting fee. However there is normally no need to pay this fee and many reputable insolvency practitioners will not charge it.

2. Can tax debt be included in an IVA?

You can include any unsecured debts in your name in an IVA. This includes tax arrears.

Any debt that you owe personally to HMRC (HM Revenue and Customs) is classed as unsecured debt. As such tax arrears debts and HMRC debts from a personal business can always be included.

Other than Court Fines the only debts that cannot be included are mortgages and other secured debts such as a car HP agreement, CSA arrears and Student Loans Company debts.

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3. Will an IVA protect my property from Charging Orders?

Once an IVA is in place it stops any legal action that any of your creditors are taking against you and gives you protection from future action.

Importantly if any creditor has already taken out a County Court Judgement (CCJ) against you these will be overturned as will any attachment of earnings that is currently in place against you. In the same way your home is protected as creditors cannot apply for additional charging orders against it.

BMD Tip: Charging Orders that have already been put in place against your house cannot be overturned and will only be released once the associated debt is paid in full. As such if one of your creditors is threatening to take out a charging order against your home you should not delay your application.

4. What happens to a car HP in an IVA?

A car HP agreement is secured against your car. This means that if you stop making the payments your car will normally be repossessed by the HP company. Therefore a car HP debt will not usually be included in individual voluntary arrangements.

However you will be able to continue paying your car HP payments so your car is not at risk. In fact your monthly payments are protected as they are included as part of your agreed monthly living expenses.

If your car HP payments come to an end before the end of your IVA, the money you save will then have to be added to your regular payment.

A car HP debt could be included in the Arrangement if you have decided to give the car back to the HP company. Any shortfall after the car is repossessed becomes unsecured and can be included in the arrangement.

BMD Tip: Since this article was written VW Finance and Lombard have both tightened up their policies surrounding IVAs. This means that it is possible that they will terminate their agreement with you if you start this type of Agreement and demand the return of the car. This by no means certain but you must check with your car HP company before you start your application.

5. Can I make a PPI claim while in an IVA?

If you feel that you have been miss sold PPI then you can make a claim for compensation while you are in an IVA if you want to. However you need to understand that it is unlikely that you will be able to keep any compensation that you are awarded.

While the Arrangement is in place PPI payouts will be treated as a windfall and will have to be handed over to your Insolvency Practitioner.

For this reason it is sensible to try and postpone making a PPI claim until after the Arrangement is completed if you can. However this may not always be possible as some insolvency practitioners are now requesting that PPI claims be made before they will allow the agreement to be completed.